Mexican peso at lowest in nearly two months; EM stocks at three-week highs

By Claire Milhench

LONDON, Jan 4 (Reuters) - Emerging market currencies broadly strengthened on Wednesday but the Mexican peso touched its lowest in nearly two months on fears U.S. President-elect Donald Trump's policies will hurt the economy. Emerging market equities held at three-week highs.

The peso slipped as much as 0.3 percent against the dollar, its weakest since Nov. 11, when it fell to a record low. Mexico's currency has been hit by signs that Trump's threats to renegotiate NAFTA and punish U.S. companies that move production outside the U.S. might be more than mere bluster.

On Tuesday, car maker Ford cancelled a planned $1.6 billion factory in Mexico following harsh criticism from Trump, saying it will invest in a Michigan factory instead.

Trump also appointed Robert Lighthizer as U.S. trade representative. Lighthizer helped to stem the tide of imports from Japan in the 1980s under President Ronald Reagan, with threats of quotas and punitive tariffs.

"He has been a strong proponent of more restrictive trade... that's bad news for Mexico for sure," said Per Hammarlund, chief emerging markets strategist at SEB, adding that Trump's proposed commerce secretary, Wilbur Ross, was also a hawk. "It signals that Trump will take a very tough line when it comes to trade."

The Turkish lira rose 0.5 percent against the dollar from record lows on Tuesday. The lira has been pressured by higher-than-expected inflation and by security worries after a series of gun and bomb attacks. Overnight, Turkey's parliament voted to extend emergency rule by three months.

"The continuation of the state of emergency keeps a dampener on business sentiment, given that [President Tayyip] Erdogan can pretty much rule by decree," said SEB's Hammarlund. "The lira is very vulnerable right now."

The benchmark emerging market equities index held steady at three-week highs, helped by a strong performance in Asia after a rally on Wall Street.

Investor sentiment was boosted by upbeat manufacturing surveys from China, the euro zone and the United States. U.S. factory activity rose to a two-year high as new orders surged.

Chinese mainland shares rose 0.8 percent, the Philippines index gained 2.5 percent and Thai stocks rose 1.3 percent to their highest since April 2015.

European stocks delivered a more mixed performance. Russian dollar-denominated stocks fell 1.7 percent - their steepest daily loss in nearly eight weeks - even though oil prices edged up after falling 2.4 percent on Tuesday.

South African stocks fell 1.2 percent, but the rand gained 1.4 percent against a weaker dollar, underpinned by a rally in precious metals.

The Chinese yuan also steadied, rising 0.2 percent after Chinese state banks stepped in to support it for a second day and the central bank set a stronger-than-expected daily trading midpoint.

But the Malaysian ringgit continued to suffer, briefly touching a 19-year low. It is considered vulnerable to rises in U.S. interest rates because of the high foreign ownership of Malaysian bonds.

The Institute for International Finance reported that emerging market portfolios recorded the lowest total inflows since 2008 in 2016 at $28 billion, with debt portfolios suffering $33.8 billion of outflows.

For GRAPHIC on emerging market FX performance 2016, see tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2016, see tmsnrt.rs/2dZbdP5

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see )

Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg

on year

Morgan Stanley Emrg Mkt Indx 869.37 +0.93 +0.11 +0.82

Czech Rep 935.59 +2.73 +0.29 +1.52

Poland 1989.86 +0.22 +0.01 +2.15

Hungary 32368.21 +199.08 +0.62 +1.14

Romania 7167.42 +3.07 +0.04 +1.16

Greece 655.94 -0.67 -0.10 +1.91

Russia 1171.78 -17.54 -1.47 +1.69

South Africa 43739.37 -521.89 -1.18 -0.37

Turkey 76842.88 +224.68 +0.29 -1.66

China 3159.82 +23.90 +0.76 +1.81

India 26636.17 -7.07 -0.03 +0.04

Currencies Latest Prev Local Local

close currency currency

% change % change

in 2017

Czech Rep 27.02 27.01 -0.03 -0.04

Poland 4.39 4.39 +0.03 +0.42

Hungary 308.52 309.10 +0.19 +0.10

Romania 4.52 4.52 +0.05 +0.38

Serbia 123.39 123.33 -0.05 -0.03

Russia 60.87 60.93 +0.10 +0.65

Kazakhstan 334.00 333.33 -0.20 -0.10

Ukraine 26.75 27.00 +0.93 +0.93

South Africa 13.63 13.82 +1.43 +0.75

Kenya 103.20 102.70 -0.48 -0.80

Israel 3.85 3.86 +0.22 -0.05

Turkey 3.58 3.59 +0.43 -1.42

China 6.94 6.96 +0.22 +0.01

India 68.17 68.25 +0.13 -0.32

Brazil 3.26 3.26 +0.00 -0.34

Mexico 21.11 21.11 -0.01 -1.87

Debt Index Strip Spd Chg %Rtn Index

Sov'gn Debt EMBIG 361 -1 .04 7 40.54 1