* MSCI index of EM FX falls to near three-week lows

* Lira bounces as new central bank head eases rate cut views

* Rouble eases on lower oil prices, rand recoups early losses

* Borsa Istanbul extends uptick rule on short sales

By Sagarika Jaisinghani

March 29 (Reuters) – Emerging market currencies slipped on Monday to hover near three-week lows as an improving U.S. economic outlook lifted demand for the dollar, while the Turkish lira bounced after closing its worst week since 2018 in the previous session.

The lira was up about 0.7% at 8.08 against the dollar as Sahap Kavcioglu, the new central bank governor who was appointed in a shock overhaul this month, played down “prejudiced” expectations of an interest rate cut in April or the following months.

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The currency crashed 10% last week after Kavcioglu’s appointment raised fears of a reversal of a series of interest rate hikes since November that had revived the currency amid concerns of Turkey’s depleting forex reserves and high inflation.

“We expect inflationary pressures to remain elevated in the coming months and do not see scope for an interest rate cut,” Abu Dhabi Commercial Bank economists Monica Malik and Thirumalai Nagesh wrote in a research report.

“However, given the political influence in (central bank) decision-making, a rate cut cannot be ruled out.”

The MSCI index of emerging market currencies eased about 0.2% and was nearing its lowest level since early March.

High-yielding currencies in the developing world have come under pressure this month from rising U.S. bond yields, which have surged on expectations of higher inflation and have pushed up demand for the dollar. A slower-than-expected recovery in Europe has also dampened risk sentiment.

“We are still holding on to a bearish dollar scenario for later in the year, but we probably need to see bond markets settle down and Europe start to play its part in the global recovery before the dollar starts to soften again,” said Chris Turner, global head of markets at ING.

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The Russian rouble eased slightly to head towards 76 versus the dollar due to falling oil prices and the lingering threat of U.S. sanctions against Moscow, while South Africa’s rand reversed early losses to gain about 0.3%.

A basket of emerging market stocks rose about 0.1% after ending Friday with its second straight weekly decline.

Turkey’s stock index rose about 0.6%. Borsa Istanbul said the uptick rule on short sales would be extended through Monday, as it sought to stabilise stock markets that slumped nearly 10% last week following the central bank shake-up.

In Ukraine, President Volodymyr Zelenskiy has dismissed the head of the constitutional court, who opposed some anti-corruption reforms, calling his actions a threat to national security, Zelenskiy’s office said on Saturday.

All eyes will also be on index provider FTSE Russell, which is expected to give the final sign-off on including Chinese government bonds (CGBs) in its World Government Bond Index on Monday.

For GRAPHIC on emerging market FX performance in 2021, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2021, see https://tmsnrt.rs/2OusNdX

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For CENTRAL EUROPE market report, see

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For RUSSIAN market report, see (Reporting by Sagarika Jaisinghani in Bengaluru; Additional reporting by Marc Jones in London; Editing by Nick Macfie)

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