EMERGING MARKETS-FX, stocks steady in the run-up to Fed rate decision

By Purvi Agarwal

Jan 29 (Reuters) - Most emerging market currencies and stocks were steady on Wednesday as traders waited for more clarity on the path of U.S. interest rates from the Federal Reserve at its monetary policy meeting later in the day.

MSCI's index tracking global EM currencies .MIEM00000CUS was down 0.1%, while the stocks index .MSCIEF was up 0.1%. Trading was light with most Asian markets closed for the Lunar New Year holiday.

Investors kept to the sidelines ahead of the Fed's first interest rate decision of the year. The central bank is widely expected to hold rates steady, but any signals on the outlook for the year will be closely scrutinized as traders increasingly expect a more cautious pace of easing.

The Fed tilted to a more hawkish stance at its last meeting, taking into account the inflationary impact from U.S. President Donald Trump's potential policies and steady economic growth, which could slow down the pace of rate cuts in the world's largest economy.

Marc Ostwald, chief economist and global strategist at ADM Investor Services, said that the Fed's messaging is going to be "unclear" as it could point to reasons besides tariffs to justify a pause, in an attempt to not "get into a clinch with Trump."

"For emerging markets, what the Fed does in terms of keeping rates higher for longer is a big hurdle."

Threats of tariffs and prospects of higher for longer rates in the U.S. have pressured demand for certain emerging market assets since last year, as local economies also grapple with an uncertain global growth outlook.

A White House spokesperson said on Tuesday that Trump still plans to make good on his promise to issue tariffs on Canada and Mexico on Saturday, shattering any hopes of the U.S. taking a less aggressive stance on tariffs.

Markets will be watching currencies and assets in heavily tariff-exposed economies such as China, Mexico and Canada, that have been reactive to headlines since Trump's inauguration. The peso MXN= was flat against the dollar in early trade.

"We are now at the stage where markets are gradually getting used to Trump again. There is now some toning down of reaction and a realization of looking at what he does, not what he says," said Ostwald.

Meanwhile in emerging Europe, most currencies were subdued against the euro.

The Czech crown EURCZK= was 0.2% lower, after the local central bank's governor said it was "very likely" it would cut interest rates by 25 basis points next week, in a media interview.

The official also said that bitcoin was under consideration as an asset for diversifying the central bank's reserves but that no decision was imminent. If approved, the bank could eventually hold as much as 5% of its 140 billion euro ($146.13 billion) reserves in bitcoin.

The Turkish lira TRYTOM=D3 was 0.2% lower against the dollar, while South Africa's rand ZAR= was flat.

South Africa's main stock index rose 0.7%, briefly touching a one month high, while bourses in Europe .BUX, .WIG20 rose broadly.

HIGHLIGHTS:

** Sri Lanka cenbank holds key policy rate steady as budget looms

** Russian bank VTB expects retail lending to go into hibernation in 2025

** Indian stocks set for longest monthly losing streak in over 23 years

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For TURKISH market report, see .IS

For RUSSIAN market report, see RU/RUB