EMERGING MARKETS-Stocks, FX rise; EU elections hamper central, eastern European FX

By Susan Mathew

May 27 (Reuters) - Emerging market shares rose on Monday and developing market currencies firmed against a recovering dollar, although central and Eastern European currencies weakened after the European Union parliamentary vote showed deep political fragmentation.

While the U.S.-China trade war loomed large, MSCI's index of emerging market shares .MSCIEF rose 0.16% after three straight weeks of losses.

With the dollar recovering only slightly from last week's decline on poor U.S. economic data, emerging market currencies climbed. FRX/

Volumes were, however, limited by market holidays in Britain and the United States.

Shares in mainland China .CSI300, .SSEC led gains in a largely positive Asia, closing more than 1% higher on hopes of policy support from Beijing to ease the pain from U.S. tariffs. .SS

The yuan CNY= led Asian currencies higher after China's banking and insurance regulator said it did not expect a persistent decline in the yuan and warned speculative short sellers they would suffer "heavy losses" if they bet against the currency. CNY/

Asian optimism spread into European trading hours, with Turkey's lira TRY= and stocks .XU100 rallying strongly.

In a move to support stability, Turkey's central bank increased the reserve requirement ratios for forex deposits and participation funds by 200 basis points for all maturity brackets, possibly withdrawing $4.2 billion of forex liquidity from the market.

South Africa's rand ZAR= slipped slightly after trading steady early in the session, as markets await an announcement on President Cyril Ramaphosa's new cabinet following his inauguration. .J

In central and eastern Europe, most currencies slipped against the euro while stocks largely gained, as they mulled EU parliamentary elections that saw pro-Europe parties retain their majority.

The elections highlighted the deepening political fragmentation of the 28-country bloc, making the task of picking candidates for the European Union's top jobs harder.

"EU elections are shaping up to be a rather mixed affair, as support for the EU has proven to be rather uneven across national boundaries," wrote Wei Liang Chang, an analyst at Mizuho bank in a note.

"It is not a rosy result given that Eurosceptic parties have seen an increase in vote share, albeit not as much as they hoped."

The Polish zloty EURPLN= fell 0.13% against the euro, while the Hungarian forint EURHUF= slipped slightly. The ruling party in each country performed strongly.

Commerzbank analysts expected May inflation data to be the next trigger for the two currencies as the continued ultra-dovish policy stance of each central bank has begun to weigh on the exchange rate, given accelerating inflation.

For GRAPHIC on emerging market FX performance 2019, see http://tmsnrt.rs/2egbfVh

For GRAPHIC on MSCI emerging index performance 2019, see https://tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see CEE/

For TURKISH market report, see .IS

For RUSSIAN market report, see RU/RUB

(Reporting by Susan Mathew in Bengaluru; Editing by Jon Boyle)

((susan.mathew@thomsonreuters.com; +91-80-6749-1130; Reuters Messaging: susan.mathew.thomsonreuters.com@reuters.net))

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