Dec 20 (Reuters) – A gauge for emerging market stocks fell to its lowest level in three weeks on Tuesday after a surprise shift in the Bank of Japan’s monetary policy and a surge in China COVID cases, while South Africa’s rand extended gains to a second day.

The BOJ decided to allow the 10-year bond yield to move 50 basis points either side of its 0% target, wider than the previous 25 basis point band, in a move aimed at easing some of the costs of prolonged monetary stimulus.

It was a move widely seen as a possible end to the central bank’s ultra-loose monetary policy, rattling global equity markets and sending the yenJPY=EBS to a four-month high. The 10-year JGB yield JP10YTN=JBTC jumped to 0.46% from the previous cap at 0.25%.

The MSCI’s index for developing world stocks .MSCIEF fell 1.2% by 0853 GMT, and hit its lowest level since late November. This comes just as other major central banks, including the U.S. Federal Reserve last week, backed hawkish views, dousing hopes that monetary policy tightening would end soon.

“The BOJ has very much provided the icing on the cake to these unwanted central bank messages, as we have now seen what was the most dovish central bank in the world also take its first steps down the road of monetary tightening,” said Stuart Cole, head macro economist at Equiti Capital in London.

Also adding to the risk-averse mood was a surge in coronavirus infections in China, with many fearing a new COVID wave that could further constrain corporate supply chains.

Shanghai stocks .SSEC, .CSI300 ended their second straight session with falls of over 1%.

The South African rand ZAR= edged 0.1% higher against a weaker dollar, after a nearly 2% jump in the previous session when President Cyril Ramaphosa was re-elected as leader of the ruling African National Congress (ANC) party.

Russia’s rouble RUBUTSTN=MCX slumped to a more than seven-month low against the dollar, extending hefty losses from the previous session on fears over the possible impact of sanctions on oil and gas.

In Turkey, data showed the consumer confidence index fell 1.3% to 75.6 points in December, ending a five-month rising streak from a record low of 63.4 in June. The lira TRY= was flat.

Ghana on Monday suspended payments on most of its external debt, effectively defaulting as it country struggles to plug its cavernous balance of payments deficit.

For GRAPHIC on emerging market FX performance in 2022, see http://tmsnrt.rs/2egbfVh

For GRAPHIC on MSCI emerging index performance in 2022, see https://tmsnrt.rs/2OusNdX

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(Reporting by Shreyashi Sanyal in Bengaluru; Editing by Arun Koyyur)