LONDON, March 1 (Reuters) - Mixed factory activity data, a stronger dollar fuelled by increased U.S. rate hike expectations, and weaker developed markets pushed emerging stocks lower on Thursday, whilst the South African rand hit a two-week low.
Manufacturing data from across emerging markets were still in expansion territory, with China's Caixin survey showing growth picking up to a six-month high in February, but Russian factory activity rose at its slowest pace since July 2016 and Turkey's eased.
Central and Eastern Europe also experienced slower growth, with Hungary, Poland and Czech Republic factory activity all dipping, with Poland's PMI at a four-month low.
Liam Carson, emerging Europe economist at Capital Economics, said that in Central Europe the falls appeared to be related to a drop in the index in Germany, the region's key trading partner, which came in at a six-month low.
"In both Poland and the Czech Republic, the new export orders components weakened markedly," he noted.
MSCI's benchmark emerging markets stocks index was trading slightly down at around two-week lows as losses in some markets offset gains in others.
Chinese mainland stocks experienced a fillip from the Caixin data, gaining 0.6 percent, but Polish shares fell 1.5 percent to seven month lows and Turkish shares slipped 1 percent.
The lacklustre performance also reflected falls in developed markets following Tuesday's hawkish-sounding comments from new Federal Reserve chair Jerome Powell, which revived fears the Fed will tighten more quickly than previously expected.
The comments boosted the dollar to a six-week high against a basket of currencies as traders priced in at least four rate hikes by the Fed in 2018.
This weighed on emerging currencies, with South Africa's rand the biggest faller, down 1 percent to two-week lows. The rand has weakened for three successive sessions, but Simon Quijano-Evans, an emerging markets strategist at Legal & General Investment Management, said this had to be viewed in the context of strong performance since the start of December.
"The rand has rallied so much versus peers, there was bound to be some sort of correction," he said. "A lot is dependent on the dollar itself now but the rand classically is the one that has a lower defence mechanism in the form of FX reserves."
Expectations of major structural reforms under new President Cyril Ramaphosa to kickstart South Africa's sluggish economy boosted the rand to three-year highs in February. South Africa's PMI rose to its best reading in nearly a year in February on increased company optimism.
The appointment of former finance minister Pravin Gordhan as public enterprises minister has also raised hopes of a clean up at state-owned firms.
Following a downgrade to its credit rating from S&P Global on Wednesday, South African state utility Eskom said it was working on a turnaround strategy and had signed a $2 billion short-term loan with a consortium of seven local and international banks. But Eskom's dollar-denominated Eurobonds continued to fall across the curve.
Turkey's lira fell 0.4 percent, Russia's rouble 0.6 percent and China's yuan 0.3 percent.
The Polish zloty underperformed its emerging Europe peers, weakening 0.3 percent against the euro.
The European Parliament is due to vote today on whether to support a proposal by the European Union's executive to punish the Polish government for backsliding on democracy.
Ukraine's state-owned energy firm Naftogaz said it would claim damages from Russia's Gazprom for its failure to deliver supplies of prepaid gas to Ukraine. A Stockholm arbitration tribunal found in Naftogaz's favour on Wednesday in a long-running legal battle.
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For RUSSIAN market report, see) Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg
Morgan Stanley Emrg Mkt Indx 1194.32 -0.87 -0.07 +3.10
Czech Rep 1118.48 -1.99 -0.18 +3.74
Poland 2326.93 -37.39 -1.58 -5.46
Hungary 38266.88 +154.88 +0.41 -2.82
Romania 8423.82 -28.59 -0.34 +8.64
Greece 828.65 -7.01 -0.84 +3.28
Russia 1274.32 -11.15 -0.87 +10.39
South Africa 51284.43 -99.02 -0.19 -2.38
Turkey 17872.70 -1078.06 -0.91 +2.20
China 3273.76 +14.35 +0.44 -1.01
India 34038.88 -145.16 -0.42 -0.05
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 25.41 25.40 -0.04 +0.44
Poland 4.18 4.17 -0.24 -0.22
Hungary 313.55 313.74 +0.06 -0.96
Romania 4.66 4.65 -0.06 +0.44
Serbia 117.90 117.83 -0.06 +0.42
Russia 56.69 56.34 -0.61 +1.72
Kazakhstan 321.83 320.41 -0.44 +3.41
Ukraine 26.66 26.80 +0.53 +5.57
South Africa 11.90 11.79 -0.92 +3.86
Kenya 101.15 101.30 +0.15 +1.93
Israel 3.48 3.48 -0.07 +0.01
Turkey 3.81 3.80 -0.40 -0.63
China 6.35 6.33 -0.27 +2.54
India 65.21 65.20 -0.01 -2.11
Brazil 3.25 3.25 +0.00 +2.04
Mexico 18.88 18.83 -0.27 +4.06
Debt Index Strip Spd Chg %Rtn Index
Sov'gn Debt EMBIG 313 3 .03 7 90.82 1
Reporting by Claire Milhench; Editing by Toby Chopra