* Turkish c.bank uncertainty continues to weigh

* EM FX index hits two-week high, stocks gain

* EM inflows at near one-year low

By Ambar Warrick

April 6 (Reuters) – Turkey’s lira dipped on Tuesday as annual inflation neared two-year highs, while an index of emerging-market currencies rose to a two-week high as pressure from the dollar and U.S. Treasury yields appeared to ease.

The lira fell as much as 0.7% to the dollar after marking large swings over the past few sessions.

Data on Monday showed annual inflation in March climbed to above 16% – its highest since mid-2019, underlining continued pressure on the central bank to meet its ambitious target of 5%.

Former central bank Governor Naci Agbal’s ouster last month, after only four months in office, had seen the lira plummet to record lows.

President Tayyip Erdogan has abruptly fired four bank chiefs in less than two years, hurting monetary credibility and contributing to the currency’s long-term decline, which in turn has driven up overall inflation via imports.

“New Central Bank of Turkey Governor Şahap Kavacıoğlu saying that rate cuts should not be taken for granted does not qualify as such a positive. If he refused to implement Erdogan’s monetary policy vision, this would not imply a stronger lira – it would only imply that he would not be around for very long,” said Tatha Ghose, FX and EM Analyst at Commerzbank.

“Whatever actually comes to pass, for now the FX market is very likely to think in this direction.”

Other emerging-market currencies rose on Tuesday, as the dollar and U.S. Treasury yields retreated from recent gains. The MSCI’s index of EM currencies rose 0.2% to a two-week high.

But currencies in Europe, the Middle East and Africa lagged their peers in Asia, amid concern over an economic recovery in the euro zone due to a sluggish COVID-19 vaccine rollout.

EM currencies have faced headwinds from strength in the dollar and U.S. yields this year, as a steady vaccination program has drummed up hopes that the U.S. economy will recover quickly from a virus-induced slump.

Recent manufacturing and payrolls data have also supported that view.

Data from the Institute of International Finance showed foreign net flows to emerging-market equity and debt portfolios slowed in March to their weakest in almost a year under pressure from U.S. assets.

Emerging-market stocks rose about 0.3% on Tuesday. Expectations of loose monetary policy around the globe have seen equities mark steady gains this year.

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 Larry King)

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