EMERGING MARKETS-EM stocks recover, but currencies subdued on shifting policy expectations

By Niket Nishant

Dec 17 (Reuters) - Emerging market stocks edged higher on Wednesday, stabilising after two days of losses as investors looked past property woes in China and the turbulence around U.S. economic data.

Currencies, however, remained fragile as monetary policy decisions and shifting expectations weighed on sentiment.

The divergence highlights the uneasy balance investors are trying to strike between selective risk-taking and caution, especially as a slew of factors threaten to stall the year-end momentum in regional assets.

"Emerging market bears have gone extinct. Most investors don't even appreciate fundamentals as much as they simply believe in the push effect from a weaker U.S. dollar," said David Hauner, head of global emerging markets fixed income strategy at BofA Global Research.

A weaker dollar tends to boost the appeal of emerging market currencies as investors search for higher-yielding alternatives.

The MSCI index of emerging market stocks .MSCIEF rose 0.7% and the currencies gauge .MIEM00000CUS was flat.

POLICY OUTLOOK STEERS CURRENCIES

The Thai baht THB=TH slipped 0.1% against the dollar after the country's central bank lowered its key interest rate by 25 basis points. Rate cuts typically tend to reduce the appeal of the local currency.

Bank of Thailand Governor Vitai Ratanakorn also said on Tuesday that policymakers were trying to curb the baht's rapid gains, which could erode export competitiveness and make Thailand a pricier destination for tourists.

The equities index .SETI dipped 0.1%. Investors are also weighing political developments as the Southeast Asian nation heads towards a snap poll in February.

Chinese stocks recovered, with the benchmark Shanghai Composite index .SSEC and the blue-chip CSI300 index .CSI300 up 1.2% and 1.8%, respectively, after a two-day slide.

The real estate index .CSI000952 also regained some poise, climbing 0.2%. China Vanke 000002.SZ, the state-backed property developer that has come under pressure in recent days, offered to pay overdue interest on a 2 billion yuan ($284 million) bond before the expiration of the grace period next week.

In Europe, the Hungarian forint HUF= fell 0.8% against the euro, extending its slide, while equities .BUX inched 0.1% higher.

The country's central bank on Tuesday left its interest rate unchanged but forecast lower inflation in 2026 than previously expected, potentially creating room for cuts.

"The central bank put a little something under the Christmas tree for the doves. If data and sentiment permit, a rate cut is likely in the not-too-distant future," economists at ING said in a note.

VENEZUELA TENSIONS ADD UNCERTAINTY

In Latin America, concerns grew after U.S. President Donald Trump ordered a "blockade" of all sanctioned oil tankers entering and leaving Venezuela.

Washington has been stepping up actions it says are aimed at disrupting drug trafficking operations and Trump has threatened land strikes in Venezuela, Colombia and Mexico.

An escalation against Venezuela could impact the oil market, though the magnitude of any fallout is hard to gauge because of the sanctions against the country.

Still, crude prices jumped on Wednesday.