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EMERGING MARKETS-Stocks hit 2-month low; Turkey's lira ticks up before c.bank decision

* MSCI EM currencies index set for worst day since March

* Johannesburg trading shut on Heritage Day

* FTSE Russell’s annual review of govt bonds index in focus

Sept 24 (Reuters) - Stocks in the developing world hit two-month lows on Thursday following a sharp pullback on Wall Street overnight, while Turkey’s lira inched up after hitting a record low against the dollar ahead of a central bank policy decision.

Among the worst performing currencies this year, the lira edged 0.1% higher after a nine-session losing streak driven by worries about Turkey’s depleted forex reserves and sharply negative real interest rates.

Despite the lira’s slump, the central bank is expected to keep its key interest rate steady at 8.25% at 1100 GMT after nearly a year of aggressive rate cuts. The bank could use back-door tightening measures to drive funding costs higher, a Reuters poll showed.

“We are sceptical that this backdoor tightening will prove sufficient to stabilise the lira,” analysts at Rabobank wrote in a note.

“Such steps will most likely delay the inevitable: a proper rate hike of the 1-week repo rate by a few hundred bps by the end of the year.”

The lira was also supported by easing tensions over sanctions from the European Union after Ankara agreed to talks with Greece over maritime claims.

MSCI’s emerging market index for stocks dropped 1.7% while the currencies headed for the steepest one-day percentage decline since March, taking cues from risk aversion on Wall Street due to concerns over the slowing pace of economic recovery and lack of fiscal stimulus.

The Russian rouble hovered near five-month lows. South African financial markets were shut on Thursday on account of Heritage Day.

Focus will also be on FTSE Russell’s annual review of its World Government Bond Index on Thursday, where the index provider is widely expected to add Chinese government bonds, potentially opening the way for more foreign participation in China’s $16 trillion bond market.

Malaysia sovereign bonds are also under review while Argentine stocks could be stripped from frontier market status amid capital controls last week.

Russia’s internet firm Mail.Ru dropped about 5%, leading declines on the rouble-based index after it announced a stock sale.

For GRAPHIC on emerging market FX performance in 2020, see tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2020, see tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see (Reporting by Medha Singh in Bengaluru; Editing by Devika Syamnath)

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