* Turkey's annual inflation rises

* U.S. economic data on watch

* South Korean shares fall over 2%

* Stocks down 1.2%, dollar firms 0.3%

Jan 3 (Reuters) - Emerging market stocks dropped on Wednesday, while the U.S. dollar firmed, as investors shied away from risky assets as they awaited the minutes of the U.S. Federal Reserve's December meeting for clues on the trajectory of interest rate cuts.

The MSCI's gauge of emerging market stocks was down 1.2% at 0941 GMT, while a basket of currencies dipped 0.3% against the dollar.

The resurgence in the dollar index and benchmark U.S. Treasury yields in recent days sheds some light on fading optimism about early rate cuts as market participants look towards the Fed's minutes for more clarity on the central bank's thinking.

"Given the strong dovish reception by the market after the December Fed announcement, there is a risk of the minutes preventing further dovish bets as some conditionality (in terms of economic data developments) for easing policy emerges in the minutes," Francesco Pesole, FX strategist at ING, said in a note.

Investors will be also watching data on U.S. job openings and the ISM manufacturing report due later in the day to assess the health of the American economy.

In Asia, South Korean shares fell more than 2%, marking their worst day in nearly two months, while Hong stocks declined 0.9%

Turkey's lira touched fresh lows of 29.7850 per dollar, inching closer to the 30 mark.

Turkey's annual inflation rate climbed to 64.77% in December, official data showed, sustaining an upward trend that is expected to continue in coming months after a big rise in the minimum wage.

The South African rand was down 0.6%, extending declines from the previous session.

In Europe, Hungary's forint rose 0.3% against the euro, while the country mandated a 12-year benchmark dollar bond issue on Wednesday, to be priced later in the day, IFR News reported.

The Russian rouble slid to 91.3725 per dollar in light holiday trading.

Argentina and the International Monetary Fund are close to an agreement on a review of its $44 billion loan programme, three sources told Reuters, a key step that would put the country on track to unlock the next tranche of funding.

For GRAPHIC on emerging market FX performance in 2023, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2023, see https://tmsnrt.rs/2OusNdX

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For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see (Reporting by Siddarth S in Bengaluru Editing by Mark Potter)