London - Emerging stocks enjoyed their first weekly gains since mid-April on Friday but currencies remained under pressure as investors remained divided on the prospect of a June interest rate rise in the United States.
MSCI's emerging equity index gained 0.7 percent on the day and is up 3 percent so far this week, lifted by gains in bourses across Asia, South Africa, Turkey and central and eastern Europe .
The gains snap a five-week long losing streak for the index.
But uncertainty over the future trajectory of US Federal Reserve interest rates kept currencies on an uncertain footing as investors cashed in recent gains. South Africa's rand, Turkey's lira and Russia's rouble all weakened against the dollar on the day.
“The Fed hike is an interesting one: If it does happen in June, it will be negative but the market is really schizophrenic about it,” said Paul Fage, senior emerging markets strategist at TD Securities.
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Markets now see a roughly 26 percent chance of an interest rate rise in June from the US Federal Reserve, down from 34 percent a day ago, according to CME FedWatch. That follows on lacklustre data and comments from a Fed policymaker who cited Brexit risks from Britain's referendum on June 23.
However, at the start of the month markets had priced no hikes in June, and the increase in expectations over the month has adversely impacted emerging assets with many economies looking vulnerable to higher borrowing costs.
“There is money looking to go into emerging markets and there is a certain appetite for risk, but it is cautious and most certainly not gung-ho,” Fage said.
Turkey's lira weakened 0.5 percent against the dollar, undermined by data showing the number of foreign tourists visiting dropped by 28 percent in April. That was the biggest drop in 17 years, amid tensions with Russia and security concerns after a series of bombings.
New political concerns also surfaced as it emerged that Deputy Prime Minister Mehmet Simsek - a key economic reformer whose reappointment this week had initially reassured investors - will see his responsibilities shrink in the new cabinet.
“We believe that political risks will not stay out of the headlines for long,” Citi analysts wrote in a note to clients.
Oil prices rallying over the week and briefly piercing the $50 dollar ceiling on Thursday had provided some support. But a 1.5 percent slide on Friday weighed on Russia's rouble, which weakened 0.3 percent.
Across central and eastern Europe, currencies eased against the euro albeit in a market rendered less liquid than usual by Warsaw's closure for a national holiday.
REUTERS