Emerging Stocks Retreat for a Fourth Day; Czech Equities Surge c.2011 Bloomberg News

Sept. 26 (Bloomberg) -- Emerging-market stocks dropped for a fourth day, with the benchmark index headed for a two-year low, on concern Europe’s debt crisis will threaten global growth.

The MSCI Emerging Markets Index fell 0.6 percent to 856.61 at 1:09 p.m. in London, set for its lowest close since September 2009. Thailand’s SET Index tumbled 5.7 percent, the world’s biggest decliner, after the central bank said it may cut its economic growth forecasts. The Micex Index jumped 2.8 percent in Moscow after Prime Minister Vladimir Putin said he would run for president. Czech stocks surged the most in 16 months as bank shares rebounded across Europe.

European policy makers are facing increased pressure to do more to stop their sovereign debt crisis from further weakening the world’s financial markets and economy. U.S. Treasury Secretary Timothy F. Geithner warned at the annual meeting of the International Monetary Fund that failure to combat the Greek-led turmoil threatened “cascading default, bank runs and catastrophic risk.”

Volatility is “here to stay until Europe comes up with a program that people think is credible,” Markus Rosgen, a Hong Kong-based strategist at Citigroup Inc., said in an interview on Bloomberg Television. “In the meantime, what you’ve got are equity markets that are already cheap and getting cheaper and cheaper. Everyone’s just watching Europe.”

Benchmark indexes jumped 2.8 percent in Poland and 5.8 percent in the Czech Republic as banking stocks rallied across Europe after Bank of France Governor Christian Noyer was quoted by Journal du Dimanche yesterday as saying that French banks had enough capital to withstand any Greek losses.

ECB Bond Purchases

European Central Bank policy makers are likely to next week debate restarting their covered-bond purchases along with further measures to ease monetary conditions, a euro-region central bank official said, speaking on condition of anonymity.

Mark Mobius, who oversees about $50 billion at Templeton Asset Management, told CNBC yesterday his fund likes banks and commodity companies in central and eastern Europe, naming Erste Group Bank AG, which trades in Prague, and Raiffeisen Bank International AG as examples of Austrian lenders with an “incredible scope” in the region.

The jump in the PX Index in Prague was led by a 17 percent increase in Erste shares.

The ISE National 100 Index gained 2 percent in Istanbul.

OAO Lukoil, the Russian oil company with the most overseas assets, jumped 4.2 percent, the most since February. OAO Gazprom, the world’s biggest natural gas producer, rallied by 2.9 percent.

South Korea’s won and Indonesia’s rupiah each depreciated by at least 2 percent versus the dollar.

Thailand, Philippines

Thailand’s benchmark stocks index suffered its largest drop since Oct. 27, 2008, after the central bank said it may cut its economic growth projections amid the global economic slowdown. Inflation expectations aren’t likely to increase and the Bank of Thailand has “closed the gap somewhat” on normalizing borrowing costs, Prasarn Trairatvorakul, the Bank of Thailand’s governor, said in an interview in Washington on Sept. 24. The bank is due to unveil forecasts next month.

The Thai gauge has lost more than 20 percent from Aug. 1, when it closed at the highest level since 1996. Some investors regard a drop of 20 percent or more from a recent high as a bear market.

The Philippine Stock Exchange Index sank for a fifth day, losing 4.2 percent to close at the lowest level since Sept. 2, 2010.

China

China’s Shanghai Composite Index dropped 1.6 percent to its lowest close since July 5, 2010, as comments from the central bank governor that inflation remains the nation’s “top concern” overshadowed record-low equity valuations.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries fell four basis points, or 0.04 percentage point, to 458, according to JPMorgan Chase & Co.’s EMBI Global Index.

The Markit iTraxx SovX CEEMEA Index of eastern European, Middle East and Africa credit-default swaps jumped to 374 basis points from 363.

--Chan Tien Hin, with assistance from Anuchit Nguyen in Bangkok, Ian Sayson in Manila and Shikhar Balwani in Mumbai. Editors: Linda Shen, Stephen Kirkland

To contact Bloomberg News staff for this story: Chan Tien Hin in Kuala Lumpur at thchanbloomberg.net; Jason Webb in London at jwebb25bloomberg.net.

To contact the editor responsible for this story: Darren Boey at dboeybloomberg.net