EMERGING MARKETS-Russia's rouble falls on threat of sanctions; EM shares rise

Sept 10 (Reuters) – Emerging market stocks were set to snap a six-day losing run on Thursday tracking gains on Wall Street, while Russia’s rouble fell on a threat of sanctions and rising pressure to investigate the suspected poisoning of Kremlin critic Alexei Navalny.

As the European Union seeks to impose sanctions on Russia, Italy said Russian President Vladimir Putin has agreed to set up a committee to probe Navalny’s illness. A report said Navalny has made further progress in his recovery and is now able to speak again.

Foreign investors have recently cut investments in Russian markets, a central bank deputy governor said, but strong demand for government bonds has helped the rouble recover from recent lows.

The currency fell slightly against the dollar on Thursday, last trading at 75.59. Data on Wednesday showed Russia’s economy shrank 8% annually in the second quarter, although the central bank said the active stage of economic recovery is over, expecting it to slow down.

ING pointed to the lack of material improvement in the private capital flows as a lack of support to the rouble from local players.

“That leaves dollar-rouble pair exposed to volatility and leaves the fate of the recovery to the 70-75 forecast range in the hands of external factors, including a normalisation of the foreign policy backdrop, stabilisation of oil prices and continued weakness of dollar globally,” said Dmitry Dolgin, chief economist at ING Bank in Moscow.

As the euro climbed with eyes on a European Central Bank policy meeting due later in the day, the dollar fell. But emerging market currencies were hesitant to capitalize on the greenback’s weakness.

South Africa’s rand slipped 0.5% after sharp gains on Wednesday. Markets will now watch for current account as well as mining and manufacturing data later in the day for more clues on the standing of the recession-hit economy.

The Turkish lira gained marginally, attempting to post gains for the first time since Aug. 28, while currencies of emerging markets in central and eastern Europe slipped against a stronger euro.

Emerging market stocks, meanwhile, rose as much as 0.7%, but cut some gains as optimism from a Wall Street rally petered out.

Rising corona cases in some countries and a stall in the development of a potential vaccine have weighed on investor minds as they prepare for a longer period of economic duress.

Hungary’s main equities index fell 0.7% after the central bank said its sees a slower economic recovery from a pandemic induced slump.

For GRAPHIC on emerging market FX performance 2020, see tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance 2020, see tmsnrt.rs/2OusNdX

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For RUSSIAN market report, see (Reporting by Susan Mathew in Bengaluru; Editing by Amy Caren Daniel)

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