EMERGING MARKETS-Indonesia stocks fall after finance minister ousted, Turkish assets continue slide

By Pranav Kashyap and Twesha Dikshit

Sept 8 (Reuters) - Indonesian stocks reversed early gains and the rupiah spiked after the country ousted Finance Minister Sri Mulyani Indrawati in a cabinet shake-up on Monday, while Turkish assets continued to slide.

The rupiah IDR= spiked 0.7%, set for its biggest intraday gain in over two months, while stocks in Jakarta .JKSE quickly reversed course to fall over 1.2% to an over one-week low.

Her removal follows two weeks of nationwide unrest and demands by protesters for a fairer tax system. Indonesia appointed Purbaya Yudhi Sadewa, the head of the Indonesia Deposit Insurance Corporation, as its new finance minister.

"Mulyani's departure, though not unexpected after recent unrest, marks the end of an era of fiscal credibility," said Mohit Mirpuri, fund manager, SGMC Capital.

"She's left strong foundations, and with experienced technocrats / candidates (like Suahasil Nazara or Chatib Basri) in the wings, I expect Indonesia will regroup quickly."

Meanwhile, Istanbul stocks .XU100 fell 1.1% to a six-week low as the lira TRY= hovered near record lows and two- TR2YT=RR and five-year bond TR5YT=RR yields hit one-month highs.

Tensions spiked as the main opposition CHP urged rallies after police ringed its Istanbul headquarters with barricades—an action the party leader denounced as a "siege."

Renewed political uncertainty has sparked a fresh flight from Turkish assets since a court ordered the dismissal of CHP officials. The party has faced a months-long legal crackdown, including against Istanbul Mayor Ekrem Imamoglu—the president's chief rival—whose March arrest ignited Turkey’s largest street protests in a decade.

"If recent political uncertainties lead to a swift and sustained deterioration in appetite for lira and place significant pressure on reserves as we approach the monetary policy meeting, we believe they would be open to a smaller cut or even remaining on hold," said Yigit Onay, economist at Deutsche Bank.

Thailand's baht THB=, meanwhile, hit an over four-year high against the dollar, as political jitters eased following the election of its new prime minister on Friday, capping off months of political uncertainty.

The yield of the country's two-year TH2YT=RR hit its lowest in over three years, while stocks in Bangkok .SETI were at their highest in nearly a month.

The MSCI gauge for emerging market stocks .MSCIEF rose 0.7%, while a similar gauge for stocks .MIEM00000CUS ticked up 0.2%.

Vietnamese equities .VNI fell to a two-week low, after the World Bank trimmed its forecast for the country's economic growth on evidence that U.S. tariffs were starting to have an impact on the exporter's shipments.

In central and eastern Europe, most currencies were trading marginally lower against the euro, while equities were mixed.

Romanian equities .BETI fell 0.3% following the broad coalition government's advancement of deficit-lowering tax hikes and spending cuts packages after surviving four back-to-back no confidence votes.

The country currently has the highest budget deficit in the European Union that it must lower to avert a ratings downgrade from the last rung of investment grade.

Polish stocks .WIG20 jumped 1.4%, despite Fitch Ratings revising the country's outlook to "negative" from "stable", citing growing risks to public finances as the key driver.

EM currencies gained momentum as investors amped up bets on a Federal Reserve rate cut this month after fresh data signalled more cracks in the U.S. labour market.

Markets have fully priced a 25 bp move and now assign about a 10% chance to a larger 50 bp cut—up from zero a week ago, CME FedWatch showed.

Elsewhere, South African stocks .JTOPI and the rand ZAR= hit a two-week high, ahead of the releases of gross domestic product figures on Tuesday.

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