* MSCI EM stocks index down 0.5%, led by China blue chips

* Stocks in Turkey, Russia, Poland rise

* S.Africa’s Eskom extends power cuts until Wednesday

* Russian rouble at seven-month high against euro

By Susan Mathew

March 15 (Reuters) – Emerging market stocks started what promises to be an action-packed week on the back foot on Monday, while currencies were helped by narrowing gains in the dollar, with rising oil prices lifting the Russian rouble and Mexico’s peso.

After posting their best week in a month on Friday, MSCI’s index of EM stocks fell half a percent as China’s blue-chip index dropped 2.2% amid concerns of tighter policy while U.S. Treasury yields holding near recent highs added to the pressure.

A higher open for Western European bourses lent some support, with indexes in Poland and Turkey up 0.4% and 0.2% respectively, while Russia’s MOEX hit a record high.

“Bond yields direction remains key,” strategists at JPMorgan said in a note.

“We do not believe the up move in yields is exhausted. Yes, in the short term policymakers will keep pushing back, but are likely to accept higher yields down the line, as the (U.S) economy strengthens. The gaps between bond yields versus activity and inflation expectations remain wide.”

Eyes this week will be on the high-level talks between Washington and Beijing, the U.S. Federal Reserve’s policy decision due Wednesday, central bank meetings in some emerging markets including Turkey, Brazil and Russia with the former two facing headwinds from inflation expected to deliver a hike.

Economic data prints such as U.S. retail sales and housing starts, industrial output from Russia, and inflation in India and Poland are among other factors on investors’ radar.

EM currencies took heart from the dollar’s reducing gains, with the Chinese yuan inching higher and other Asian units trimming losses, while South Africa’s rand erased early losses made on power utility Eskom extending power cuts in Africa’s most industrialised nation to a sixth day.

Johannesburg’s main stock index fell as much as 0.9% to hit a two-week low.

In Russia, the rouble hit a three-month high against the greenback and a seven-month top against the euro, riding a recovery in oil prices and bracing for more local support from tax payments.

“Commodity FX have historically been more resilient to rising U.S. yields,” said the JPMorgan strategists.

The Polish zloty was flat against a weaker euro. The chances of a change in Polish interest rates are almost zero, the central bank governor said in comments published on Sunday, but businesses could face negative rates in the future if the COVID-19 pandemic continues for a long time.

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

For TURKISH market report, see

For RUSSIAN market report, see (Reporting by Susan Mathew in Bengaluru; Editing by Subhranshu Sahu)

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