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EMERGING MARKETS-Stocks, currencies retreat as Trump tests positive for COVID-19

Oct 2 (Reuters) - Emerging market stocks and currencies slipped on Friday with investors flocking to the perceived safety of the dollar, yen and gold after U.S. President Donald Trump tested positive for COVID-19.

The greenback gained about 0.6% on the risk-sensitive Australian dollar, while U.S. and European stock markets tumbled after Trump said he and his wife Melania were going into quarantine.

An index of emerging market currencies was nearly flat at 0756 GMT with the news - coming less than five weeks before the U.S. presidential election - sapping risk appetite globally and jolting market volatility.

“This does damage Trump’s ability to campaign and time is running out before the election,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank in Tokyo.

“Whether it’s Trump or Biden, the biggest problem is uncertainty. As long as we’re uncertain about who will win the election, it is difficult for markets to truly settle.”

The Turkish lira slipped 0.2% and was on course to post its fifth weekly decline in a row on growing geopolitical concerns, including the military conflict in the South Caucasus.

EU leaders broke a diplomatic deadlock early on Friday and assured bloc member Cyprus it would punish Turkey if it continued operations in disputed waters.

A Turkish foreign ministry official said the country would be even more determined to protect its territorial rights in the Eastern Mediterranean if the EU ultimately decides to impose sanctions on it over offshore oil and gas exploration.

The lira has been hammered this year despite central bank efforts to lift it from record lows. In minutes of its latest policy-setting meeting, where it unexpectedly hiked its key lending rate, the central bank said pandemic-driven, supply-side inflationary effects persisted.

The Russian rouble skid 1% to head back toward six-month lows, also pressured by a plunge in oil prices. South Africa’s rand eased about 0.6% after firming for four straight sessions.

“Given the over-riding news of Trump’s illness, market sentiment will remain a constraint to riskier currencies including the ZAR,” market economists at ETM Analytics wrote in a note.

An index of developing world stocks fell 0.2% but was still on course for a weekly gain.

In Russia, shares in Sberbank fell 8% as they went ex-dividend, while Aeroflot slipped 3% after the company announced its plan to raise at least 80 billion roubles ($1.02 billion) in a secondary public offering.

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

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For CENTRAL EUROPE market report, see

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For RUSSIAN market report, see (Reporting by Sagarika Jaisinghani in Bengaluru; additional reporting by Mfuneko Toyana; Editing by Subhranshu Sahu)

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