* China shares falter, Beijing to not cut rates to spur growth
* Most Asian currencies fall after Fed minutes
* Rand up, traders see smaller chance of Moody's rating cut
By Susan Mathew
Feb 21 (Reuters) - Emerging market stocks made cautious gains on Thursday on reports that Sino-U.S. trade negotiators have started to tackle their toughest issues, while the currency index made minor moves as investors digested the U.S. Fed's January meeting minutes.
The MSCI index of emerging market shares rose 0.25 percent and touched a three week high, after Reuters reported the United States and China are drawing up six memorandums of understanding on structural issues.
This could herald the most significant progress yet toward ending the months long trade dispute before a March 1 deadline, which U.S. President Donald Trump said he was willing to extend if both sides were close to making a complete deal.
"Sentiment seems to be more positive than negative although not 100 percent,' said Cristian Maggio, head of emerging markets strategy at TD Securities.
Asian shares hit a 4-1/2 month high, with India and Taiwan's near 0.5 percent rise leading gains. Russia and Turkey made muted gains, while South Africa turned lower.
"With a mix of factors including digestion of the minutes from the Fed and some other expectations around a U.S.-China trade deal, the market is just bombarded with ... conflicting information, just trying to find its way through," Maggio said.
Mainland China shares declined as Beijing said it will not resort to aggressive interest rate cuts to boost growth, with Premier Li Keqiang reiterating that the "flood-like" stimulus unleashed in past downturns would not be resorted to.
"The warning from the Chinese Premier seemingly indicates that the authorities are still deeply concerned about the debt problems," said Commerzbank analysts.
In currencies, the MSCI index of emerging market currencies was slightly lower. The Chinese yuan rose to a seven-month high, fuelled by trade optimism, before slipping slightly.
Most other Asian currencies weakened as the Fed's minutes were perceived to be not as dovish as expected, aiding a move higher in the dollar overnight.
"Whilst policymakers agreed to maintain a patient stance for the time being, they are more split on whether to further hike rates in 2019," said analysts at Mizuho Bank in a note.
But the dollar pared its advance, allowing for gains in currencies such as the Turkish lira and the South African rand.
The rand had dipped on Wednesday after the country's finance minister announced a 69 billion rand ($5 billion) partial bailout for cash-strapped power company Eskom, while unveiling the annual budget.
But the currency recovered as traders saw a smaller chance of a rating cut to "junk" by Moody's, the only one of the top three rating agencies to keep an investment grade on South Africa's credit rating.
"An outlook change from stable to negative is a very high probability at this point," said TD Securities' Maggio.
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For RUSSIAN market report, see ($1 = 13.9213 rand) (Reporting by Susan Mathew and Agamoni Ghosh in Bengaluru Editing by David Holmes)