EMERGING MARKETS-Czech stocks and currency in spotlight after Babis election win

By Nikhil Sharma

Oct 6 (Reuters) - Emerging market assets slipped on Monday after a week with strong gains while attention centred on the Czech Republic after the election victory of Andrej Babis's ANO party at the weekend.

Billionaire Babis has promised lavish government spending to raise wages, cut taxes and accelerate economic growth - measures that would cost billions of euros, end austerity and test the country's traditionally frugal mindset.

The Czech crown EURCZK= slipped 0.1% while equities in Prague .PX gained 0.3% to extend their climb to a new high.

Babis said he would seek support for small parties, including the far-right SPD, to form a majority while rejecting accusations of plans to direct the country away from the European Union and NATO.

"The reason that he won the election is basically because people were very unhappy. The measures that he wants to take are very popular," said Barry van der Laan, senior FX market strategist at Monex.

"However, if we lose fiscal discipline ... that could, in the longer term, put some pressure on the Czech Koruna."

The country's 10-year bond yield CZ10YT=RR fell 5 basis points to 4.425%. Preliminary data showed Czech headline inflation eased to 2.3% year on year in September, moving closer to the central bank's 2% target, despite expectations of a slight pickup.

Separately, the outgoing centre-right government submitted a 2026 central state budget plan targeting a deficit of 286 billion crowns ($13.81 billion), up from 241 billion crowns in the 2025 budget.

The MSCI index of emerging market equities .MSCIEF fell 0.35% and was on track to snap five days of gains. The decline coincides with a sell-off across Europe, fuelled in part by the collapse of France's new government in a deepening political crisis.

A broader gauge for emerging market currencies .MIEM00000CUS fell 0.26% - set for its biggest daily decline since July 29 - as the dollar strengthened after losses in the previous week.

Elsewhere in central-eastern Europe, the Polish zloty EURPLN= and main stock index .WIG20 was little changed.

The Hungarian forint EURHUF= dipped 0.1% while Budapest stocks .BUX were largely unchanged. Data showed retail sales rose by an annual 2.4% in August after a 1.7% rise in July.

Prime Minister Viktor Orban said that Hungary should not adopt the euro, arguing that the EU is disintegrating and the country should not tie its fate more closely to the bloc.

Elsewhere, Hamas officials arrived in Egypt on Monday for talks with Israel, raising hopes of an end to the Gaza conflict and the freeing of hostages as part of U.S. President Donald Trump's 20-point plan.

Israel's shekel ILS= edged up 0.4% at a more than three-year high, while its international bonds moved slightly lower.

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