Emerging market currencies buckle after Fed cuts stimulus

LONDON, Jan 30 (AFP): Emerging markets faced intense pressure on Thursday after the US Federal Reserve cut its stimulus further, with currencies sliding in India, South Africa and Turkey despite interest rate rises.

Asian shares fell heavily and European stocks also retreated, extending a global rout driven by worries about emerging markets.

Concerns were stoked when the US central bank further reduced its quantitative easing (QE) stimulus overnight.

Wall Street sank on Wednesday after the Fed said it would reduce its bond-buying programme by $10 billion to $65 billion per month, citing a pick-up in the US economy. That followed a similar announcement in December.

Investors took flight as the news fed fears of capital flows from emerging markets that have benefited from the Fed's cheap money policy, hitting nations with large current account deficits, as dealers look for safer investments back home.

The Turkish lira fell against the dollar and the euro, as the Fed news overshadowed a big interest rate rise.

Turkey, where political upheaval is fuelling market fears, doubled its interest rate to 10.0 per cent late on Tuesday giving short-lived support to the currency.

South Africa's Rand currency languished close to a five-year dollar low, one day after the central bank announced a half-percentage-point rate rise.

"Rate hikes in Turkey and South Africa have failed to lift their beleaguered currencies as investors fret about the adverse impact on growth in both countries, adding to nervousness in emerging markets," said Nick Stamenkovic at RIA Capital Markets in London.