London - Emerging market stocks climbed for a second day on Tuesday ahead of a US monetary policy meeting, and Czech stocks hit their highest since March on speculation that planned tax hikes would be shelved after an inconclusive election.
The US Federal Reserve starts a two-day meeting later on Tuesday to decide whether to start trimming its $85 billion monthly bond-buying programme, a policy that has indirectly boosted emerging market assets over the past year.
No change is expected at this meeting, and many economists now predict the central bank will delay any tapering of this stimulus until at least next March.
The MSCI emerging markets index rose 0.15 percent on Tuesday, continuing a reversal of last week's sharp losses.
In central Europe, Czech stocks rallied more than 2 percent to seven-month highs as the Social Democrats's narrow victory in weekend Czech elections reduced the prospect of them pushing through planned tax rises.
China's central bank resumed open market operations for the first time since October 15 to stabilise local money market rates that had surged to their highest levels since June on Monday.
That eased investors' concerns about policy tightening in China.
Analysts at Morgan Stanley cautioned that despite the strong chance of US monetary policy remaining loose, the liquidity squeeze in China provided a stark reminder of the headwinds facing emerging markets.
“Concerns about domestic liquidity conditions in China -though for now likely overdone - are nonetheless stark reminders that fundamental conditions in EM (emerging markets) remain challenging. A pick-up in growth is necessary for us to take a more constructive stance on EM risk,” they said in a note.
India's central bank on Tuesday raised its benchmark repo rate by 25 basis points, the second hike in two months as it seeks to combat high inflation. It did however lower the short-term emergency funding rate for banks to support growth.
Hungary's central bank, by contrast, is expected to cut rates by 20 basis points later on Tuesday.
In South Africa, the renewed threat of mining strikes and a slowdown in private sector credit demand in September pointed to a stuttering economy. The rand hit a week low against the dollar.
The rouble hit its lowest in a week against the dollar as the Russian tax-payment period neared its end, falling into the range where the central bank starts to intervene regularly to support the currency. - Reuters