EMERGING MARKETS-EM assets gain as Asian markets recover from rout, investors assess war developments

By Twesha Dikshit

March 5 (Reuters) - Emerging market equities and currencies recovered on Thursday, lifted by a rebound in Asian markets after massive losses in both regions a day earlier, as investors kept their focus on shifting developments in the Middle East war.

The MSCI index of EM equities .MSCIEF, in which Asian stocks have a big weighting, advanced 2.5%, partially recovering losses of over 8% over the last three sessions.

Iran launched a wave of missiles at Israel as the war entered its sixth day and Republican senators in Washington blocked a motion requiring military action to be authorized by Congress.

Maritime traffic remained stalled with Iran's revolutionary guards telling state media that during times of war, passage through the Strait of Hormuz would remain under the control of the Islamic Republic.

Oil and gas prices soared with the vital waterway a conduit for over 20% of daily global oil supplies. Concerns lingered over supplies and the impact on inflation, with Asia's heavy reliance on oil imports making it vulnerable to energy shocks.

"It's commodity importers and particularly energy importers which tend to feel the pain. The real question is the duration of the conflict. If it is over in a week or two, any second round inflation effects should be pretty limited," said Peter Kinsella, global head of forex strategy at UBP.

MSCI's corresponding gauge for currencies .MIEM00000CUS ticked 0.2% higher.

Kinsella said he expected EM currencies to rally again after the conflict was resolved, with currencies popular for carry trades, such as Brazil and Mexico, posting a strong performance to start the year.

EM STOCKS RECOVER FROM RECENT LOSSES

Bourses in the Middle East were mixed, with those in Dubai .DFMGI, Abu Dhabi .FTFADGI and Bahrain .BAX falling between 0.9% and 2.4%.

UAE's central bank governor said the country's banking and financial sector was resilient and well-positioned to navigate regional developments.

Indexes in Qatar .QSI, Saudi Arabia .TASI, Egypt .EGX30 and Kuwait .BKP were all up over 1%.

In emerging Europe, stocks in Romania .BETI and Hungary .BUX added 2.1% and 1.8%, respectively. The benchmark index .XU100 in Turkey, Iran's neighbor, rose 1.4% after posting big declines earlier this week.

Turkey's finance minister said the country would temporarily activate its sliding scale system for fuel prices to offset the impact of a partial oil price shock.

Poland's blue-chip index .WIG20 was marginally up, a day after the central bank cut its main interest rate by 25 bps as expected. The zloty EURPLN= weakened 0.3% against the euro.

Other regional currencies were between flat and lower with the Hungarian forint EURHUF= remaining under pressure, dropping 0.8%.

Asian markets staged a partial recovery from the previous session's rout with South Korean stocks .KS11 gaining 9.6%. Taiwan shares .TWII closed 2.6% higher, while Indonesia's .JKSE rose 1.8%.

Outflow data showed that foreign investors sold Asian equities for a fourth month in February, cutting exposure to South Korea over highly prices tech sector valuation concerns.

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