LONDON, Nov 24 (Reuters) - Emerging stocks overcame their China-fuelled jitters on Friday and were set to extended their rally for a fourth straight week, while South African assets weakened amid nervousness over a possible ratings downgrade.
MSCI's emerging market benchmark edged higher on the day, with gains of around 1.6 percent since Monday and Asia's ex-Japan index hovered near 10-year peaks as Hong Kong bucked continued softness in the mainland shares to gain 0.6 percent.
Chinese mainland stocks traded flat after dropping nearly 3 percent - their steepest fall in 18 months - on Thursday, roiled by the government pledging fresh steps to reduce financial risks and a rout in the bond market.
Yet it was South Africa that held the attention of investors preparing for the latest verdict of ratings agencies Moody's and S&P Global that could see local government bonds downgraded to junk.
The rand weakened 0.3 percent against the dollar, though it was on track for a small weekly gain. Benchmark local bond yields edged lower but stayed near 20-month highs of more than 9.5 percent.
A cut by both agencies would see South Africa's $125 billion debt market lose its place in key bond indexes and in turn force index-tracking and rating-constrained funds to sell more than $10 billion in debt, analysts have predicted.
Paul Greer, senior debt trader at Fidelity International predicted that active investors and local banks could use a selloff to add to their holdings.
"If you look at the rand from the real perspective it looks appealing, but we are neutral because the uncertainty around the event is so high its trickier to take a large position," said Greer.
"If we get a double downgrade, we will see significant pressure on Monday and I think that will offer a buying opportunity and investors will start to look at the metrics - the high real yields and the steepness of the curve."
Despite a softer dollar, currencies elsewhere fared little better. Turkey's lira weakened 0.5 percent on the day and looked poised for a 1.6 percent fall on the week.
Turkish assets have come under renewed pressure in recent days, pummelled by concerns over the central bank coming under renewed political pressure to cut rates despite the slide in the lira and double-digit inflation.
Meanwhile Russia's rouble eked out small gains, cushioned by steady oil prices.
The rouble is also on track to gain 1.6 percent on the week - its best such performance since early October.
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Reporting by Karin Strohecker, additional reporting by Sujata Rao, graphic by Claire Milhench