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Trade hopes lift stocks; emerging markets get boost from Turkey rate hike

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NEW YORK (Reuters) - An index of world stock markets climbed to its highest in over a week on Friday as expectations grew that the United States and China would start fresh trade talks, while an interest rate hike in Turkey supported the lira and emerging markets.

The MSCI All-Country World index, which tracks shares in 47 countries, rose 0.24 percent and touched its highest since Sept. 4.

On Wall Street, the Dow Jones Industrial Average rose 10.01 points, or 0.04 percent, to 26,156, the S&P 500 gained 0.41 points, or 0.01 percent, to 2,904.59 and the Nasdaq Composite added 16.67 points, or 0.21 percent, to 8,030.38. [.N]

The pan-European STOXX 600 index gained 0.28 percent. [.EU]

Chinese shares retreated as data showed real estate investment in the country fell in August, raising concern that a cooling property market could increase risks for Beijing’s economic outlook as the trade environment worsens.

The benchmark Shanghai Composite index fell 0.2 percent while the blue-chip CSI 300 rose 0.2 percent.

Chinese officials welcomed an invitation from U.S. Treasury Secretary Steven Mnuchin to new trade talks. But President Donald Trump tempered market expectations, tweeting on Thursday that Washington was “under no pressure to make a deal with China.”

The Trump administration is readying a final list of $200 billion worth of imports from China, the world’s No. 2 economy, that it plans to impose tariffs on in the coming days. That move would escalate the trade war between the two countries and could significantly slow global growth.

“While the potential for a trade deal in the near-term remains low, a resumption of dialogue could lift sentiment and support markets,” analysts at Credit Suisse wrote in a note to clients.

Benchmark 10-year Treasury notes hit the psychologically significant 3 percent level for the first time in more than a month as prices on U.S. government bonds fell on economic data that seemed solid enough to support plans by the Federal Reserve to raise rates another two times in 2018.

RATE HIKE LIFTS LIRA

A sharp interest rate increase by Turkey’s central bank to support a tumbling lira boosted risk appetite in emerging markets. The bank hiked its benchmark interest rate by more than one-third to 24 percent.

Currency crises in both Turkey and Argentina have stoked fears of contagion over the past several weeks, hammering emerging market assets from Indonesia and India to South Africa.

Turkish lira implied volatility gauges fell to their lowest in more than a month, as sentiment continued to improve.

“The bold decision (by Turkey’s central bank) reduces the risk that a full-scale financial crisis may unfold,” wrote analysts at Rabobank in a note to clients.

“The central bank’s efforts must be accompanied by an implementation of constructive macro prudential policies by the administration.”

Emerging market stocks rose 0.96 percent, though copper, used heavily by China, lost 1.18 percent to $5,962.00 a tonne.

Oil prices slipped after a week of back-and-forth swings. U.S. crude fell 0.41 percent to $68.31 per barrel and Brent was last at $77.79, down 0.5 percent on the day.

Graphic: Emerging market currencies battered - reut.rs/2p8rvKO

Reuters Graphic

Graphic: World FX rates in 2018 - tmsnrt.rs/2egbfVh

Reporting by Trevor Hunnicutt; additional reporting by Ritvik Carvalho and Saikat Chatterjee in London; Editing by Bernadette Baum

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