EMERGING MARKETS-Czech election jitters build; EM assets on track for strong weekly close

By Nikhil Sharma

Oct 3 (Reuters) - Emerging Markets stocks and currencies inched closer to weekly gains on Friday, but nerves grew as the Czech Republic election took center stage amid higher odds for a nationalist-led government.

Opinion polls suggest a comeback for populist billionaire Andrej Babis, who has pledged to raise wages and lift growth while reducing aid for Ukraine and shielding voters from dangers outside borders such as costly climate policies or immigration.

The Czech crown EURCZK= slipped 0.1% on Friday and is set to end the week on a quiet note. Year-to-date, it has jumped 3.7%.

"We have seen solid performance of the Czech koruna, partly due to the policy of the National Bank. But things are likely to change after the elections," said Barry van der Laan, Senior FX Market Strategist at Monex, pointing out that the cause for concern would be "the way the government is going to be formed and which parties are going to be involved in the majority".

The Czech central bank last month extended its rate pause and signaled the need for tight policy, citing upside risks to inflation, and said it was too early to think about raising rates, according to minutes from the last policy meeting.

Equities in Prague .PX edged up 0.17% to trade at a record high and have risen 1.4% this week so far.

Meanwhile, the MSCI index of emerging market equities .MSCIEF rose 0.3% on Friday, marking its fifth straight daily win. It was up 3.4% for the week so far.

Firming expectations for further policy easing by the U.S. Federal Reserve later this year have supported global equities throughout the week, offsetting worries about a partial U.S. government shutdown.

Yet, uncertainty lingered as investors evaluated the duration of the government closure that delayed a comprehensive September jobs report, forcing market participants to rely on Wednesday's private payrolls data to gauge the Fed's future actions.

The concerns weighed on the U.S. dollar, which was down 0.4% for the week, allowing currencies elsewhere to shine. A broader gauge for EM currencies .MIEM00000CUS rose 0.3% week-to-date and remained steady for the day.

The Hungarian forint EURHUF= outperformed its peers, up 5.5% so far this week as its relatively high 6.5% benchmark rate continued to attract inflows.

Stocks in Budapest .BUX jumped 0.5%, set for modest weekly gains. Polish stocks .WIG20 were among the top performers, up 1.9% , as a benign inflation reading this week opened doors for Poland's central bank to consider its next rate cut.

The currency zloty EURPLN= remained subdued throughout the week.

In Turkey, the main BIST 100 share index .XU100 dropped 0.7% on Friday, while the lira TRY= edged 0.1% higher after the annual inflation rate jumped to 33.29% in September, well above expectations, reinforcing concerns that the central bank may need to slow its easing cycle to address stubborn price pressures.

Elsewhere, Senegal's international bonds extended their rally as the International Monetary Fund's staff will discuss a new fund-supported program with the West African country to begin this month.

The note with 2031 maturity XS2838363476=TE jumped 2.2 cents to the dollar. The IMF board will meet later in the day to discuss the situation, including a debt misreporting issue.

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