Oct 15 (Reuters) - A three-day rally in emerging-market stocks ran out of steam on Tuesday as optimism faded over a China-U.S. trade deal, while Turkey's lira recovered from near four-month lows.
Optimism fuelled by a partial trade deal between the United States and China reverted to caution as questions mounted over the deal. Uncertainty also stemmed from investors weighing the likelihood of a Brexit agreement by Thursday.
After gaining 2.5% over the past three days, MSCI's index of emerging-market equities traded flat.
"Investors were reluctant to jump on the rally bus," said Stephen Innes, Asia Pacific market strategist at AxiTrader. "Doubts continue to swirl whether China and the U.S. can reach a full trade agreement to end the trade spat."
Tensions remained over Turkey's military offensive in northern Syria, though the lira recovered some ground after U.S. sanctions were deemed lighter than expected.
Concerns about growth were also reinforced after China reported factory-gate prices fell at the fastest pace in more than three years in September, just after numbers showed a slide in exports.
Chinese mainland stocks ended five days of gains to fall around 0.5%. Shares rose in Taiwan, India , South Africa and Russia.
Emerging-market currencies made minor moves against a largely steady dollar. South Africa's rand strengthened 0.2%. Russia's rouble weakened 0.1% as crude oil prices fell. TURKEY Turkish stocks recovered on Tuesday to rise 1.6%, after slumping 5% and logging its worst session in six and a half months on Monday. But analysts warned of more pain to come.
"... Sanctions, if fully enacted, would cripple the weak Turkish economy," said Cristian Maggio, head of emerging markets strategy at TD Securities. "While economic consequence will take time to become visible, financial damages already are doing so, though they could get much worse depending on the outcome."
The lira is the worst-performing emerging-market currency in October as of Monday's close, in contrast to most other developing-world currencies.
Some now expect Turkey's central bank to hold interest rates this month, cutting expectations from a 100- to 200-point cut predicted earlier. Economic indicators continued to deteriorate, with the latest data showing rising unemployment.
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