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EM currencies up on US jobs data

The rand and Turkish lira both reversed early losses to trade slightly higher against the dollar.

The rand reversed early losses to trade slightly higher against the dollar. Picture: Craig Wynn/EWN.

SAO PAULO/LONDON - Emerging market currencies firmed on Friday after weaker-than-expected US payroll numbers led traders to pare bets the US Federal Reserve would speed its tapering of monetary stimulus.

US employers hired far fewer workers than expected in January and job gains for the prior month were barely revised up, suggesting growth in the world's largest economy is losing steam.

"A strong number could [have accelerated] the tapering," said Pedro Tuesta, an economist with 4Cast consultancy in Washington, DC.

Tuesta warned, however, that gains could be limited as the Fed is likely taking a medium-term view of the economy and would not necessarily modify its tapering schedule based on short-term weaknesses.

Markets fluctuated immediately after the data release as traders digested the numbers, though most emerging market currencies firmed shortly thereafter.

The rand and the Turkish lira both reversed early losses to trade slightly higher against the dollar.

In Russia, the rouble reduced early gains but remained firmer for the fourth day in a row, rising to one-week highs against the dollar. On Friday the central bank again shifted its target exchange-rate corridor following interventions aimed at curbing the pace of the currency's decline.

Ukraine's hryvnia firmed off five-year lows after the central bank slapped restrictions on some types of foreign currency purchases, saying the move was aimed at defending the banking system's stability.

In Latin America, Brazil's real strengthened for the fourth straight session, while the Argentine peso gained for a fifth day in a row.

"At first glance [payrolls data] was bad, but on the other hand it was well above the previous reading, which could feed a bit of optimism," said Caio Sasaki, an analyst with XP Investimentos in Sao Paulo.

Emerging equities extended early gains to trade at their highest level in over a week, with Brazil's Bovespa index on track to close the session with its first weekly gain in six.

Mexico's IPC stock index edged higher, while Chile's IPSA index rallied for a fourth day, touching its highest level in over a week.

Ilan Solot, an analyst at Brown Brothers Harriman, said the pace of selloff in the currencies of 'fragile' economies with big current account gaps was slowing and possibly could hit markets such as Mexico and Poland where investors had big positions.

"We're not going to see Turkey and South Africa lose as much," he said. "Fragile countries are fighting back with interest rate hikes, intervention and in some cases changes to their monetary policy system."

However emerging funds continued to see increasing redemptions in the week to 5 February, banks said citing data from EPFR Global. Equity fund outflows so far in 2014 now surpass the total seen in 2013, the data shows.

Data from Thomson Reuters company Lipper showed that outflows from emerging stock funds amounted to $2.7 billion, the biggest weekly loss since February 2011.

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