LONDON: Emerging stocks extended gains and hit a 10-day high on Monday but currencies broadly weakened as the glow of a stellar bounce in assets late last week started to fade and investors became cautious again.
MSCI's emerging market index gained 0.9 percent - the first time the benchmark has been set for a second straight day of gains since late December - lifted by healthy gains across Asia and some south and eastern European markets.
Yet currencies of major emerging economies slipped again as crude oil prices took another leg lower following their surge late last week.
"Overall EM remains quite fragile - it is very difficult to draw conclusions on the swing that we had at the end of last week which was driven partly by the ECB's very dovish stance," said Murat Toprak, FX strategist at HSBC.
Weighed down by weaker oil prices, Russia's rouble slipped 1.2 percent against the dollar yet stayed below the key 80 to the dollar level and with both dollar- and rouble-denominated stocks racking up losses.
Russia's economy, which has been hit hard by the tumble in oil prices as well as sanctions, contracted by 3.7 percent in 2015, according to data published on Monday.
South Africa's rand weakened by 0.3 percent, with investors cautiously awaiting the outcome of a central bank meeting on Thursday. Russia's central bank is scheduled to publish its decision on Friday.
"We don't want to be buyers of EM currencies at this juncture," said Toprak. "If we look at the rouble or the rand, those currencies remain quite fragile, very dependent on oil or what the central banks will do this week."
Turkey's lira also weakened 0.3 percent despite assurances from a senior adviser to Turkish President Tayyip Erdogan who said the lira weakness was not a problem for now.
Central and eastern European currencies fared no better.
Poland's zloty and Hungary's forint weakened 0.3 percent against the euro.
Croatia's kuna traded at around its weakest in several months against the euro on Monday due to concerns that fiscal reforms will be further delayed, even though the country's parliament ended a long political stalemate late on Friday, electing a new government.
Yet bourses across the region saw their indexes rise, with stocks in Prague up 0.7 percent while Warsaw-listed equities rose 0.3 percent.
Athens' bourse chalked up some of the biggest gains, jumping 1.3 percent while Greece's 10-year government bond yields fell after ratings agency Standard and Poor's raised its rating by one notch to B minus, praising the country's compliance with the terms of its third bailout.
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