* Lira falls 0.4% vs dollar after 1.2% surge on Wednesday
* Turkish cenbank expected to keep key rate unchanged
* Rouble down 0.6%, S.African rand clings to recent gains
* Belarus bonds steady after EU slaps sanctions
* EM stocks tumble as Fed paints dour picture; Asia leads losses
Aug 20 (Reuters) - Emerging market stocks and currencies slumped on Thursday as the U.S. Federal Reserve reiterated a tough and prolonged economic recovery, while Turkey’s lira dipped after a rare surge, with all eyes on a central bank decision on interest rates.
The lira fell 0.4%, but a 1.2% rise on Wednesday kept the currency from hitting new lows.
Turkish President Tayyip Erdogan said on Wednesday he would announce “good news” on Friday, spurring the surge. A source said it was related to Turkey’s discovery of energy resources in two separate locations in the Black Sea, one of which was of a significant size.
At 1100 GMT, the central bank is expected to take more back-door steps to rein in credit, while a formal hike in the weekly repo rate remains a less likely option to support the sagging currency.
“Looking at the recent weak price action in the lira, the ongoing FX deposit accumulation by locals and rising COVID-19 cases, it has become even more obvious that onshore funding has to be tightened further,” said Christian Wietoska, strategist at Deutsche Bank.
Sentiment was severely dented after minutes of the Fed’s July meeting showed more monetary policy easing may be needed to help nurse the U.S. economy through the coronavirus crisis, with a rebound in employment already slowing.
“The surge in COVID-19 infections over the summer has muted the recovery.. The fact that the Fed appeared reluctant to step up further stimulus efforts imminently, disappointed the bulls who were expecting further clues on the trajectory of monetary policy,” said Hussein Sayed, chief market strategist at FXTM.
Wall Street gave up gains overnight and futures pointed to a lower open, while Asian shares looked to post their worst session in a month.
MSCI’s index of emerging market stocks lost 1.5% and hit their lowest in more than two weeks and its currency counterpart slipped 0.3%.
Safe-haven assets such as the dollar and gold bounced.
Russia’s rouble fell half a percent in the face of declining oil prices, growing geopolitical tensions in neighbouring Belarus and the suspected poisoning of Russia’s opposition leader.
Belarus bonds steadied following two days of gains after the European Union announced sanctions against officials the bloc blames for election fraud and abuse of protestors.
South Africa’s rand, meanwhile, clung on to recent gains, up 0.1%.
Philippines’ currency was unchanged after the central bank kept its key interest rate on hold as expected.
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For RUSSIAN market report, see (Reporting by Susan Mathew in Bengaluru; editing by Uttaresh.V)
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