Emerging markets stocks, currencies hit by a week of worries

London

RATTLED by trade war fears and steep dollar gains, emerging markets ended the week on a sour note with stocks slipping to more than two-week lows and a clutch of currencies on track for their worst week in years.

MSCI's emerging market stocks benchmark fell 0.8 percent on a third day in the red, with the benchmark Shanghai Composite index plumbing to a 20-month low while export-heavy South Korea slipped 0.8 per cent.

Markets were spooked by the heightening prospect of a trade war after a US administration official said President Donald Trump had made up his mind to impose "pretty significant" tariffs on Chinese goods.

Beijing said it was ready to respond if Washington chose to ratchet up trade tensions.

Mr Trump was due to unveil revisions to his initial tariff list targeting US$50 billion of Chinese goods on Friday, while a second list of tariffs on US$100 billion in Chinese goods is nearly completed.

Emerging assets had already suffered on Thursday, digesting Wednesday's hawkish outlook from the US Federal Reserve with the US dollar racing higher after the European Central Bank signalled on Thursday it would keep interest rates at record lows up to at least mid-2019.

The US dollar's index against a basket of six major peers rose 0.3 per cent to 95.111, its highest level since November, after rallying more than 1 per cent the previous day.

"The tightening impact on financial conditions of the stronger dollar doesn't help and I think that is at the centre of all the crises we are now talking about in emerging markets,"said Jim McCaughan, CEO of US$450 billion asset manager Principal.

He expected the greenback to continue go "somewhat higher".

China's yuan fell to a near two-week low against the dollar after the central bank in Beijing fixed the official midpoint at the lowest in five months.

The Asia Pacific MSCI index ex-Japan edged down 0.3 per cent and was set for a weekly loss of more than 1 per cent.

Many markets in Asia including Singapore were closed on Friday for holidays celebrating the end of Ramadan.

Japan's Nikkei average closed up 0.5 per cent and Australian shares ended 1.3 per cent higher.

European shares were set for their best week in more than three months as investors pushed back expectations for an interest rate increase after Thursday's European Central Bank meeting.

The pan-European STOXX 600 index fell 0.2 per cent, up 2.2 per cent on the week.

The euro was headed for its worst weekly loss in 19 months after the ECB signalled interest rates would be left at record lows into at least mid-2019. The common currency shed 1.9 per cent to the dollar, its biggest daily decline since Britain voted to quit the EU in 2016.

Oil prices were little changed as investors eyed a key Opec meeting in Vienna. Saudi Arabia and Russia, architects of a producer deal to cut output, have indicated they want production to rise.

West Texas Intermediate (WTI) crude oil futures were down 0.2 per cent at US$66.76 per barrel; Brent was down 0.6 per cent at US$75.49. REUTERS