Emerging market sell-off worsens

Heavy selling engulfed emerging markets again on Thursday with more currencies falling prey to fears of higher global borrowing costs and a reduction in cheap cash supplies from the United States, Reuters reported.


While the Indian rupee and Turkish lira skidded to new record lows against the dollar and the Indonesian rupiah slumped to fresh four-year lows, currencies such as the Mexican peso and the Korean won that have so far been spared the worst of the recent selloff, are also now feeling the heat.


Market expectations that the US Federal Reserve will start cutting back its $85 billion-a-month money printing program from September were maintained after minutes from the US central bank's July meeting gave little new guidance on timing. That drove a fresh spike in US. 10-year yields, the risk-free rate against which all assets, including emerging markets, are benchmarked.


"US yields will go higher - that is obvious - and no one wants to be exposed to assets in emerging markets which are very sensitive to US monetary policy," said Maarten-Jan Bakkum, investment strategist for ING Investment Management's emerging market funds.


As US Treasury yields hit new two-year highs - they stand around 120 basis points higher than early-May levels - more and more investors dumped emerging assets.


Emerging equities fell for the fifth straight session to bring 2013 losses to 13 percent .MSCIEF.Bonds in emerging currencies also sold off with average yields at almost 7 percent on the main GBI-EM index - the highest in more than two years.


Currency weakening accelerated, forcing central banks to step up their efforts to stem it.


Turkey pledged to increase dollar sales to sell $350 million on Thursday after the lira hit a record low for the second day in a row but analysts called for more steps. Turkish stocks shed over 2 percent .XU100 while bond yields rose.


"We expect further interest rate hikes or even an emergency monetary policy meeting," said Ali Cakiroglu, a strategist at HSBC in Istanbul.


Earlier, the Indian rupee fell another 1.5 percent to plumb a new low past 65 per dollar, bringing losses since the start of this week to around 5 percent.


Indonesia too suffered fresh losses and capital outflows, triggering a warning from Fitch that weak policy management could affect credit ratings for it and for India



Brazil will offer $4 billion on the spot market on Thursday, boosting its efforts to curb the real's losses. The currency has tumbled to near five-year lows despite some $30 billion in central bank interventions via the swap markets.