August 28, 2018 / 8:42 AM / 3 months ago

EMERGING MARKETS-Emerging stocks extend gains on NAFTA deal; lira slides

LONDON, Aug 28 (Reuters) - Emerging-market stocks rose to 18-day highs on Tuesday, tracking gains on Wall Street after U.S.-Mexico trade agreement, but the lira fell after Turkey warned that U.S. sanctions against it could destabilise the Middle East.

The United States and Mexico agreed on Monday to overhaul the North American Free Trade Agreement, boosting auto stocks and lifting the S&P 500 and Nasdaq to record highs.

MSCI's benchmark emerging-market equities index rose 0.3 percent after jumping 1.8 percent on Monday, its best one-day gain since the end of June.

The upbeat trade outlook was also boosted by news Washington was pushing the European Union to accelerate tariff talks .

"The fact that they are moving forward is a good sign," said Per Hammarlund, chief emerging markets strategist at SEB. "If (U.S. President Donald Trump) can agree with Mexico maybe he can agree with the EU, and China eventually too. It's good news for markets."

Asian and emerging European markets made broad-based gains with India up 0.5 percent to an all-time high , Turkey up 0.8 percent, and Hong Kong 0.3 percent. Poland hit a six-month high before retreating.

Mexico's peso weakened 0.2 percent after bouncing around 0.7 percent on Monday following the deal.

China's yuan hovered near two-and-a-half-week highs after the central bank raised its daily guidance rate for the yuan by the most in nearly 15 months.

On Monday, the central bank revived a "counter-cyclical" factor in its daily fixing, arresting a 10-week slide in the yuan that had rattled global markets.

Hammarlund said this had helped risk appetite because it was taken as a sign that China would not weaken the renminbi as a weapon in the trade war with the United States.

Chinese mainland shares retreated 0.2 percent, after leaping 2.4 percent in the previous session.

Turkey's lira again weakened the most among the currencies, down 1.3 percent after Finance Minister Berat Albayrak warned that U.S. trade sanctions against Turkey could destabilise the Middle East.

Turkish five-year credit default swaps rose 8 basis points from Monday's close to 484 bps according to IHS Markit data.

The rift with the U.S. over an pastor detained in Turkey on terrorism charges has aggravated a crisis in the Turkish lira this summer. Investors are concerned about structural problems including a failure to tighten monetary policy and constrain public finances.

The South African rand gained 0.1 percent after U.S. Federal Reserve chairman Jerome Powell's speech at Jackson Hole, which signalled steady interest rate hikes.

The country has scrapped plans to add 9,600 MW of nuclear power by 2030 and will instead aim to add capacity in natural gas, wind and other energy sources.

Russia's rouble was steady after new U.S. sanctions came into effect on Monday. Russia has drawn up a range of measures in case the U.S. imposes sanctions on Russian sovereign debt.

For GRAPHIC on emerging market FX performance 2018, see tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2018, see tmsnrt.rs/2dZbdP5

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see) Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg

on year

Morgan Stanley Emrg Mkt Indx 1072.60 +3.46 +0.32 -7.41

Czech Rep 1079.21 +2.70 +0.25 +0.10

Poland 2362.73 -7.24 -0.31 -4.00

Hungary 36730.95 +45.16 +0.12 -6.72

Romania 8291.67 -9.61 -0.12 +6.94

Greece 736.56 +0.29 +0.04 -8.20

Russia 1084.50 +0.37 +0.03 -6.06

South Africa 53772.58 +217.97 +0.41 +2.36

Turkey 91957.02 +672.97 +0.74 -20.27

China 2777.98 -2.92 -0.10 -16.00

India 38873.52 +179.41 +0.46 +14.14

Currencies Latest Prev Local Local

close currency currency

% change % change

in 2018

Czech Rep 25.71 25.70 -0.05 -0.71

Poland 4.27 4.27 -0.12 -2.31

Hungary 324.08 323.70 -0.12 -4.18

Romania 4.64 4.64 +0.01 +0.73

Serbia 118.39 118.10 -0.24 +0.01

Russia 67.42 67.38 -0.05 -14.48

Kazakhstan 361.47 360.82 -0.18 -7.93

Ukraine 28.00 27.84 -0.57 +0.52

South Africa 14.14 14.16 +0.13 -12.63

Kenya 100.60 100.75 +0.15 +2.49

Israel 3.63 3.62 -0.09 -4.13

Turkey 6.20 6.12 -1.22 -38.85

China 6.81 6.81 +0.12 -4.41

India 70.24 70.16 -0.11 -9.12

Brazil 4.08 4.08 -0.02 -18.79

Mexico 18.78 18.76 -0.10 +4.64

Debt Index Strip Spd Chg %Rtn Index

Sov'gn Debt EMBIG 386 1 .01 7 72.26 1

Reporting by Claire Milhench, editing by Larry King

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