* Lira plummets ahead of long weekend

* Rouble steady after Putin speech

* CEE currencies await ECB meeting

* EM stocks recover slightly

By Ambar Warrick

April 22 (Reuters) – Turkey’s lira was headed for its worst day this month as concerns over financial stability grew, while other emerging market currencies were encouraged by a weaker dollar, although surging COVID-19 cases capped gains.

The lira dropped as much as 2.3% to 8.3669 to the dollar, leading losses across emerging market (EM) currencies in Europe, the Middle East, and Africa (EMEA). It had tumbled nearly 1% on Wednesday after President Tayyip Erdogan defended a costly FX sales policy.

Erdogan’s unorthodox stance, that high interest rates cause inflation, has cast doubts over the country’s financial stability and spurred large losses in the lira.

“The new weakness of the lira is in line with broader EM FX trends in recent days – but, any depreciation of the lira is always significant because FX pass-through is such a crucial element of high inflation in Turkey; and any seemingly harmless move can kick-start a market spiral and complicate matters,” Tatha Ghose, FX and EM analyst at Commerzbank said.

Turkish sovereign dollar bonds were also sold off as reports suggested the United States was set to formally recognise the massacre of Armenians by the Ottoman Empire during World War One as an act of genocide, which could strain ties between Ankara and Washington.

The MSCI’s index of emerging market currencies rose 0.1%, as continued weakness in the dollar benefited risk-driven assets. But a damaging new wave of COVID-19 infections held back major gains.

“The rise (in cases) has also been more geographically diverse than previously … This raises both the threat of renewed restrictions on mobility and the odds that vaccine-resistant strains will emerge,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.

In EMEA, Russia’s rouble traded sideways, having gained 0.4% on Wednesday after President Vladimir Putin set out social support measures and called for measures to restrain inflation.

His address came amid heightened tensions with the West over Russian troops near the Ukraine border and the treatment of a prominent Kremlin critic.

EM stocks rose 0.2%, after marking their worst day in nearly two weeks on Wednesday.

Central European currencies were flat ahead of a European Central Bank meeting, where the bank is widely expected to maintain policy.

In Asia, ratings agency S&P upgraded Taiwan’s rating to “AA/A-1+”, citing a positive outlook, with external demand expected to keep supporting the economy.

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 Ambar Warrick in Bengaluru. Editing by Mark Potter)

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