EMERGING MARKETS-Stocks firm, FX steady as investors downplay Iran-Israel conflict

By Nikhil Sharma

June 16 (Reuters) - Emerging market stocks showed resilience on Monday following steep losses in the previous session, shrugging off worries about an escalating Iran-Israel conflict that has added a layer of geopolitical uncertainty.

The clashes showed no signs of cooling on Monday when Iranian missiles struck Tel Aviv and the port city of Haifa before dawn, killing at least five people.

Conflict in the Middle East poses another challenge to world leaders as they gather at the Group of Seven summit in Canada, with U.S. President Donald Trump's tariffs already straining ties and challenging the global trade order.

However, markets set aside the fears and started the week on a firm note. Israel's shekel ILS= rose 2.1% against the dollar in early trading, reversing most losses made last week in the run-up to the conflict.

International bonds across the Middle East region, including for Israel, Saudi Arabia, Qatar and Oman, were all broadly steady for the day.

"Economically, there's almost no impact from these two countries going to war insofar as they are both very small economies. And so the damage to production is relatively small," said Tim Graf, head of macro strategy for EMEA at State Street, as he explained the surprise resilience in markets.

MSCI's index for emerging market equities .MSCIEF rose 0.6% on the day, after sliding more than 1% on Friday when the armed conflict between the two nations broke out.

Meanwhile, an index tracking EM currencies .MIEM00000CUS also rose 0.2% after clocking modest gains in the previous week, capitalising on a longstanding weakness in the U.S. dollar.

The dollar index =USD was down 0.2% in choppy trading on Monday, and has fallen more than 9.6% this year so far, mainly due to U.S. fiscal woes and President Donald Trump's erratic policy actions posing a threat to global growth.

In Central Eastern Europe, the Polish currency zloty EURPLN= was up 0.1% against the euro and Warsaw's main stock index .WIG advanced 0.2% after three straight days of losses.

However, caution emerged after fresh data revealed Poland's budget deficit widened to 108.3 billion zlotys ($29.42 billion) at the end of May, up from 91.43 billion zlotys at the end of April.

The country has the second-highest budget deficit in the European Union behind Romania.

The leu Romanian currency EURRON= fell 0.3% after rising by 0.5% in the prior week. A similar move was also seen in Bucharest .BETI stocks on Monday following the previous week's sharp losses.

The Czech crown EURCZK= was largely unchanged ahead of a no-confidence vote in the government on Tuesday. The main opposition party had accused the government of corruption over the acceptance of a $45 million bitcoin payment to the state by an ex-convict.

On Monday, data showed Czech producer prices rose less than expected. Prague's main stock index .PX was flat for the day after shedding over 1% last week.

Hungary's forint EURHUF= rose 0.4%, while stocks in Budapest .BUX stood out and gained about 1%.

In Turkey, the Treasury department reported a budget surplus of 235.2 billion lira ($5.97 billion) in May, after showing a deficit in April.

Its main BIST-100 index .XU100 flattened ahead of a rate verdict due later in the week.

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