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Emerging markets pare weekly losses

Mumbai - Emerging-market stocks and currencies pared weekly declines as receding odds of a Federal Reserve interest-rate increase this year helped stem a global selloff.

A gauge of developing-nation equities extended Thursday’s gain and was still on course for its steepest five-day drop since mid-June.

South Africa’s rand and Indonesia’s rupiah rebounded as the dollar’s rally unraveled amid dovish Fed comments and disappointing US economic data before September 20 to September 21 central bank meetings in Washington and Tokyo. Trading in several markets across Asia and the Middle East markets was curtailed this week by local holidays.

Price swings in emerging markets have been widening as investors await fresh signals from the Fed as to how soon it will tighten policy after the market-implied probability of an increase in 2016 dropped below 50%.

Economists are divided over whether the Bank of Japan, which meets on the same days as the Fed, will add to its unprecedented stimulus and keep money flowing into higher-yielding assets.

“The slight recovery largely reflects the weaker-than-expected US data,” said Irene Cheung, a foreign-exchange strategist at Australia & New Zealand Banking Group in Singapore.

“The main uncertainty next week is the Bank of Japan meeting, which could change a lot of things. If they can convince the market that they will stay accommodative, then risk could come back. But if they underdeliver there could be quite a lot of volatility.”

The MSCI Emerging Markets Index rose 0.1% on Friday after climbing 0.4% on Thursday. The equities gauge was down 2.1% for the week to 889.93 as of 07:27. The MSCI Emerging Markets Currency Index declined 0.5% from September 9.

The Bloomberg Dollar Spot Index, which tracks to greenback against 10 peers, retreated Wednesday and Thursday after Fed Governor Lael Brainard started the week by saying the case for tighter policy “is less compelling.”

That speech was followed by a retail sales report for August that fell short of economist forecasts. A measure of economic data surprises slumped to the lowest since June.

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