EMERGING MARKETS-EM stocks on firmer ground; Thai baht hits highest since 2021

By Niket Nishant

Dec 22 (Reuters) - Emerging market stocks advanced on Monday to kick off the holiday-curtailed week on a strong note as investor anxiety over an artificial intelligence bubble eased and focus shifted to encouraging signals in Asia.

The moves put the region's bourses on track for a solid finish to the year, supported by inflows from investors seeking alternatives to U.S. equities, where valuations are widely seen as more stretched than in emerging markets.

"Although much of the AI investment is taking place in the U.S., there are substantial spillovers to parts of Asia, as the region is a key production hub of electronics, including cutting-edge semiconductors," economists at Oxford Economics wrote in a note.

The MSCI index of emerging market equities .MSCIEF rose 1%. China's blue-chip CSI300 index .CSI300 jumped nearly 1%, while the Shanghai Composite Index .SSEC rose 0.7%, poised for its fourth straight day of gains.

China left benchmark loan prime rates unchanged for the seventh consecutive month in December. Data also showed that the private fund sector in the world's second-biggest economy expanded to a record 22.1 trillion yuan ($3.1 trillion) in November, aided by strong flows into equities.

BAHT SURGES, OTHER CURRENCIES MOSTLY STEADY

MSCI's currency gauge .MIEM00000CUS, however, was little changed, suggesting that investors remain wary despite selective risk-taking.

The Polish zloty EURPLN= weakened slightly against the euro, while the stock benchmark .WIG rose 0.5%. Retail sales in November rose 3.1% year-on-year, lower than the 3.4% analysts polled by Reuters had expected.

The Thai baht THB=TH rose 1% against the dollar, hitting levels not seen since June 2021 and highlighting the challenge the central bank faces as it tries to temper the currency's advance.

Policymakers worry that the surge, which has made the baht a standout performer among Asian currencies, could erode export competitiveness and make Thailand a pricier destination for tourists.

Bank of Thailand Governor Vitai Ratanakorn said on Monday the inflation target will be kept within a range of 1% to 3% for next year.

US-VENEZUELA TENSIONS DOMINATE

Geopolitical issues remained front and centre. Officials told Reuters on Sunday that the U.S. Coast Guard was pursuing an oil tanker in international waters near Venezuela.

The developments follow last week's order by U.S. President Donald Trump for a blockade of sanctioned tankers moving in and out of Venezuela, raising the stakes in a standoff with President Nicolas Maduro.

Any further escalation could hit oil markets and ripple across the region, particularly as Brazil and Mexico push for de-escalation, an approach that may strain their relations with Washington.

Oil prices rose, and the main share index in Saudi Arabia .TASI, the world's biggest oil exporter, inched 0.1% higher.

Some investors are also betting that increasing U.S. pressure on Maduro could pave the way for political change and a restructuring of Venezuela's debt. The country's bonds have returned roughly 100% at the index level this year.

Investors are increasingly focused on what a future restructuring deal could look like.

U.S. special envoy Steve Witkoff said on Sunday that talks to end Russia's war in Ukraine were productive. However, Russian President Vladimir Putin's top foreign policy aide said that changes made by Europe and Ukraine to U.S. proposals did not improve prospects for peace.

Most of Ukraine's dollar-denominated bonds were trading higher.

Separately, ratings agency Fitch downgraded Gabon's long-term foreign-currency issuer default rating on Friday, citing widening fiscal deficits and the government's limited access to regional debt markets.

($1 = 7.0370 Chinese yuan renminbi)