EMERGING MARKETS-Stocks up but currencies slip, investors await Polish rate decision

By Nikhil Sharma

Oct 7 (Reuters) - Emerging market stocks rose on Tuesday, but currencies fell as the U.S. dollar strengthened, while attention shifted to Poland as it braced for a key interest rate decision.

The MSCI index of emerging market currencies .MIEM00000CUS fell 0.2% - the most since August 26. The dollar index =USD rose 0.31% amid political shifts in Japan, where fiscal dove Sanae Takaichi is set to become prime minister.

Meanwhile, a gauge of emerging market equities .MSCIEF added 0.25% after modest losses in the previous session.

Investor attention centered on Poland, where the Monetary Policy Council commences its two-day interest rate meeting on Tuesday and is expected to keep rates unchanged at 4.75%.

While delivering a modest cut in September, the central bank pointed to a decline in inflation, drew attention to risk factors related to fiscal policy and higher wage growth, and took a data-dependent tone.

Recent inflation numbers showed price pressures within the National Bank of Poland's target range. On Tuesday, the country revised its 2024 gross domestic product to 3.0% year-on-year from 2.9% published earlier.

The local currency zloty EURPLN= slipped 0.1% and Polish stocks .WIG20 gained 0.6% on Tuesday.

"While inflation remains benign and the National Bank of Poland maintains an easing bias, markets are increasingly focused on fiscal credibility," analysts at Monex said in a note.

Hungarian stocks .BUX rose 0.45%, while the forint EURHUF= tumbled 1% after Hungarian Prime Minister Viktor Orban said on Monday that the country's key interest rate of 6.5%, joint-highest in the European Union, was "higher than it could be." The currency is up about 5% year-to-date, with sky-high interest rates making the forint a carry trade favorite. Meanwhile, Hungary also disclosed plans to cut taxes for companies next month to offset the negative effects of weak European growth and U.S. tariffs.

Concerns about fiscal indiscipline mounted in neighboring Czech Republic after the election victory of populist ANO leader Andrej Babis, who ran his campaign assuring government spending to raise wages, cut taxes, and accelerate growth - measures that would cost billions of euros.

The Czech crown EURCZK= fell 0.2% after minor losses on Monday, while Prague equities .PX declined 1% - on pace for the worst day since April 30.

Fresh data underscored Czech growth worries as industrial output unexpectedly fell by 1.3% year-on-year in August, after a 1.8% rise in July. Analysts polled by Reuters had expected a 0.6% year-on-year increase.

Elsewhere, Vietnam prepared for a decision on Tuesday by index provider FTSE Russell that could upgrade its stock market to emerging status alongside China and India, potentially unlocking billions of dollars in foreign investment.

The country's main stock index .VNI cooled 0.6% after climbing more than 3% on Monday, while the local currency dong VND= was largely flat.

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