Lira rebounds, but Chinese ban of video game spooks shares

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LONDON (Aug 15): Turkey's battered lira gained for a second day on Wednesday as its central bank moved to whack short sellers, but a Chinese ban of a video game left MSCI's US$2 trillion emerging-market share index near bear-market territory.

The lira surged as much as 6% to back under 6 per dollar, having recovered on Tuesday more than 8% of what had until then been a 45% slump this year

Turkey's banking watchdog tightened rules on swap transactions, which helped offset a government decision to impose tit-for-tat sanctions on some US goods.

Turkish government bonds also gained for a second day with hopes of improved Turkey-European Union ties after Ankara released two Greek soldiers who had been detained since March.

"Remarkable turnaround," said Bluebay Asset Management's Tim Ash. "It's like last week the CBRT (Turkish central bank) were on a long holiday. They came back from vacation, rolled their sleeves up and said, right, let's try and sort this mess out."

Elsewhere, the mood was more subdued. South Africa's rand and Russia's rouble both slid again and Poland's zloty dropped after the EU stepped up a legal case against Warsaw's plans to force older judges to retire.

Stocks fell after Chinese regulators blocked the sale of Tencent's video game "Monster Hunter: World". Asian video-game companies tumbled and China's blue-chip index dropped 2.3%.

That in turn took 1% off MSCI's US$2 trillion EM index, which tracks 24 countries. It is now down 19.3% from its January highs, just short of the 20% generally accepted as the threshold for a "bear" market.

The gap in performance with developed markets is now one of the widest on record, charts now show.

Asian currencies had also weakened overnight. China's yuan hovered around 15-month lows and Indonesia's rupiah touched a near three-year low. Indonesia's central bank then pulled a surprise move by raising its main interest rate for the fourth time since mid-May.

"The reason for the rate hike is to maintain the attractiveness of our domestic financial market, in that we want yields ... to remain attractive despite rising risk premiums, and that could trigger inflows," central bank Governor Perry Warjiyo told a news conference.

India's finance minister weighed in too. "Recent developments relating to Turkey have generated global risk aversion towards emerging market currencies and the strengthening of the dollar," Arun Jaitley said on Twitter.