China stocks drag EM shares lower, FX muted

May 23, 2024 at 05:23 am EDT

* India's Nifty 50 hits record high

* Turkey rate decision awaited

* China launches 'punishment' war games around Taiwan

* EM stocks down 0.3%

May 23 (Reuters) - A gauge for emerging market stocks slipped on Thursday as escalating geopolitical tensions dragged heavyweight Chinese shares lower, while hawkish minutes from the U.S. Federal Reserve's last policy meeting kept most currencies subdued.

MSCI's index for emerging market stocks fell 0.3%, as benchmark indexes in China closed over 1% lower.

A furious China launched "punishment" drills around Taiwan in what it said was a response to "separatist acts," sending up heavily armed warplanes and staging mock attacks as state media denounced newly inaugurated President Lai Ching-te.

The Chinese yuan was last at 7.25 per dollar, touching an over three-week low.

Helping stave off larger losses, India's benchmark Nifty 50 index hit a record high, boosted by financial shares. It was last up over 1%.

Turkey's lira held steady at 32.22 per dollar ahead of a central bank rate decision, with the bank expected to leave its key interest rate unchanged at 50% later in the day.

Currency markets around the world were subdued after minutes from the Fed's last policy meeting showed officials still had faith that price pressures would ease at least slowly in coming months, but doubts emerged whether the current level of interest rates was high enough to guarantee that outcome.

"The fate of EM currencies depends on how the U.S. is going to fare. Right now we are back to a soft landing narrative ... (but) EMs are not out of the woods yet," said Mali Chivakul, emerging market economist at J. Safra Sarasin Sustainable Asset Management.

South Africa's rand weakened 0.6% against the dollar, hitting an over one-week low in the lead-up to national elections next week.

Russia's rouble slipped 0.2%, on track to snap an eight-day winning streak.

In Central Eastern Europe, Hungary's forint led losses with a 0.3% fall against the euro while most stock markets in the region also traded lower.

Minutes from the Mexican central bank's last policy meeting and a rate verdict in Chile are among key events expected later in the day.

HIGHLIGHTS:

** Lebanon's reforms insufficient for recovery, IMF says

** UAE economy grew 4.3% in fourth quarter of 2023

** Polish inflation is not stabilized at target level, says central banker Tyrowicz

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