Emerging markets steady after G7 move on yen

Emerging markets steadied on Friday after the Group of Seven's surprise move to soothe markets anxious over Japan's nuclear crisis, while Russia's rouble leapt after United Nations approval of air strikes against Libya boosted oil prices. Escalating tensions in North Africa and the Middle East kept Israel's shekel pressured while Turkish shares slipped, undermined by the spike in oil.
Though on track for its second weekly loss in a row, the key emerging equities index inched 0.3 percent higher by 1105 GMT while emerging sovereign debt narrowed 4 basis points to trade 277 bps over US Treasuries. "Things are a little bit better this morning, particularly in Asian stock markets with Japan leading the way. Lots of people have sold off some of these markets quite heavily over the course of the last couple of weeks and generally positioning is fairly light," said Nigel Rendell, emerging markets strategist at RBC Capital Markets.
There was little reaction to China's reserve requirement hike, its third this year as it battles to curb inflation. However, the G7's move to curb the strength of the yen helped calm investor nerves frayed by Japan's struggle to contain radiation leaking from a nuclear power plant damaged by last Friday's earthquake.
Japan's deputy finance minister warned that the grouping of the world's richest nations would be ready to "act decisively" again if speculators resumed driving the yen up. Since the Japanese earthquake and tsunami, investors have pulled $2.2 billion from emerging stocks. But Friday's intervention by the G7 boosted appetite for emerging currencies and assets. "It's cautious buying on the currency front and also on the equity side but there's still obviously uncertainty with oil prices and what's going on with Libya...so I'm not sure how long it's going to last," said RBC's Rendell.
Turkish shares failed to capitalise on firmer sentiment, falling nearly 1 percent while the lira firmed 0.2 after early morning losses against the dollar. The threat of higher energy prices could hit Turkey hard as the country is reliant on imports to cover 95 percent of its oil and gas needs.
US crude is hovering above $102 per barrel after the UN authorised a no-fly zone over Opec-member Libya to protect civilians threatened by forces loyal to Muammar Gaddafi. However, buoyant oil prices sent Russian stocks up to their highest in over a week and boosted the rouble 0.7 percent up against the dollar.
Investors remain cautious amid simmering unrest in the Middle East. Saudi King Abdullah is expected to make a rare address to the nation later in the day aimed at stemming discontent in the world's largest oil producer. Flat after early losses against the dollar, the shekel could come under further pressure. "We are short shekel as a way to express a bearish view on the situation in the Middle East. We recognise that the shekel is not a high-beta currency but it is no longer a defensive asset, in our view. The shekel looks rich to start with and is subject to both contagion and intervention risks," Societe Generale said in a client note.