EMERGING MARKETS-EM assets eke out weekly gains as investors weigh divergent policy paths

By Niket Nishant

Dec 12 (Reuters) - Emerging market assets were set to close out a week packed with monetary policy decisions with only slim gains, as rate-cut optimism gave way to uncertainty over next year's guidance and geopolitical tensions returned to the fore.

The MSCI index of emerging market stocks .MSCIEF rose nearly 1% on Friday, and the currencies index .MIEM00000CUS edged slightly higher. Both were poised to end the week up 0.3% and 0.1%, respectively, if current levels hold.

Beneath the modest headline gains, however, diverging policy paths across emerging markets are becoming more important for investors.

With geopolitical risks flaring, country-specific central bank moves and guidance are increasingly driving returns and volatility across local assets.

"While emerging markets' core inflation has, on average, returned to central bank targets, there remains considerable variation across economies," analysts at J.P. Morgan wrote in a note.

LOCAL CENTRAL BANK DECISIONS IN FOCUS

The Czech crown EURCZK= slipped 0.1% against the euro, set to snap a three-day winning streak, after a central bank board member told Bloomberg News that market bets that a rate hike will come next year were premature.

Rate hikes are generally seen as negative for equities, but typically support a currency, especially when the dollar is weakening, as investors search for higher-yielding alternatives.

Czech equities .PX rose 0.7% and were at a record high.

In Turkey, the stock benchmark .XU100 gained 0.7% a day after the central bank lowered its policy interest rate by 150 basis points, citing signs of improvement in inflation, even as the lira TRYTOM=D3 hovered at a record low.

The Hungarian forint EURHUF= slid 0.5%, extending its slide as tensions with the European Union escalated.

On Thursday, the European Commission ordered Hungary to scrap a limit set on retail price margins on food products and drugstore articles levied on non-Hungarian retailers or risk legal action. Hungary's Economy Ministry defied the call.

Polish stocks .WIG climbed 0.7% and hit their highest in a month. The Polish zloty EURPLN= was 0.1% lower.

Central banker Ireneusz Dabrowski said the monetary policy council is likely to slow the pace of rate cuts in the near future and enter a wait-and-see mode, but there is a possibility of a reduction later in 2026.

Developments in Ukraine continued to draw investor attention. The country's dollar-denominated bonds were trading higher, with issues due in 2029, 2035 and 2036 up more than 1 cent on the dollar, according to data from Tradeweb.

Diplomatic efforts to end the Russia-Ukraine war have intensified in recent weeks. The White House said on Thursday that the administration was prepared to send a representative to talks in Europe this weekend if there is a realistic prospect of signing a peace agreement, even as comments from U.S. President Donald Trump suggested his patience was starting to wear thin.

Investors were also monitoring trade developments. The Indian rupee INR=IN dropped to a record low as a long-awaited trade deal with the U.S. remained out of reach.