By Karin Strohecker
LONDON, Feb 19 (Reuters) - Emerging stocks clawed their way slightly higher on Monday though currencies came under some pressure after the dollar found its footing, with South Africa in focus as markets awaited a cabinet reshuffle ahead of Wednesday's budget.
MSCI's overall emerging markets index climbed 0.2 percent. The benchmark has recovered half the losses sustained in the recent correction when emerging stocks tumbled more than 10 percent over nine days after worries a rise in U.S. inflation could boost dollar funding costs.
Stocks performed mixed on a country-by-country level. Bourses in South Korea , Turkey and Poland gained, but stocks in Moscow and South Africa slipped. Trading was thin with many bourses across Asia closed for the lunar new year holiday.
Currencies came under some pressure as the dollar extended gains for a second day against a basket of major currencies.
"What is most important for emerging markets is not to see a meltdown of developed market equities, or very sharp moves in the dollar in the direction of the dollar re-strengthening, or a very significant repricing of market implied expectations about future Fed hikes," said Cristian Maggio at TD Securities.
South African markets have been on a tear in recent days, fuelled by hopes that a change in the political leadership could re-invigorate the continent's most industrialised economy. However, while new President Cyril Ramaphosa's maiden state of the union address on Friday pushed the rand initially to its strongest level in three years, the currency turned softer in late trading and extended the losses on Monday, weakening 0.2 percent against the dollar.
"On the whole there were more positives than negatives (in Ramaphosa's speech), but we are at the point where a lot of the benefit of the doubt has been given to South Africa and Ramaphosa and now he will need to start delivering," said TD Securities Maggio.
"The budget which is due this week will be an important milestone to measure what the tenure of Ramaphosa will be like."
Investors are waiting to see if Finance Minister Malusi Gigaba will present the budget on Wednesday or will be on his way out in an much anticipated cabinet reshuffle. Local benchmark 10 year yields were within a blink of 8 percent yield, their lowest in 2-1/2 year. Data showed that offshore investors had been net buyers of stocks and bonds last week. Meanwhile in Latvia, Prime Minister Maris Kucinskis said the central bank chief should resign following his detention by the anti-corruption agency.
Governor Ilmars Rimsevics, who also sits on the ECB Governing Council, was detained by Latvia's anti-corruption agency on Sunday.Latvia's stocks fell 1.3 percent.
For GRAPHIC on emerging market FX performance 2018, see For GRAPHIC on MSCI emerging index performance 2018, see For TOP NEWS across emerging markets For CENTRAL EUROPE market report, see For TURKISH market report, see For RUSSIAN market report, see (Reporting by Karin Strohecker; Additional reporting by Claire Milhench; Editing by Robin Pomeroy)
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