EMERGING MARKETS-Assets ease as investors pare aggressive US rate cut bets

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China markets closed Oct. 1-7 for National Day holidays

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Sri Lanka to discuss shape of IMF deal in Washington meetings

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CEE's manufacturing downturn continues but bright spots appear

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Turkish manufacturing sector contracts further in Sept

By Ankika Biswas

Oct 1 (Reuters) - Emerging market stocks and currencies started October on a sombre note, as Federal Reserve Chair Jerome Powell's latest comments pared hopes of hefty U.S. rate cuts, pruning investors' risk-on mood after a strong month for the asset classes.

As Powell indicated only quarter-percentage-point rate reductions and even added that there's no hurry to cut in light of new encouraging economic data, CME's FedWatch Tool showed market participants pulled back their bets of another oversized 50-basis-point rate cut in November.

"While the Fed did move aggressively in September, there is no guarantee that it would have to cut by the same magnitude again... Moreover, between now to the next meeting, the Fed has to consider two sets of NFP (non-farm payrolls) prints and arguably, sentiment around the U.S. Presidential elections," said DBS strategists.

With the dollar index firming against its major peers, and with heavy-weight Chinese financial markets shut for trading due to public holidays, the recent rally in EM assets came to a halt.

The MSCI index for EM stocks edged 0.1% lower, after logging its best month in 10 on the back of positive developments in the world's largest economies -- China's series of policy measures to lift its ailing economy and the Federal Reserve's 50-bps cut in September.

The currencies index, too, slipped 0.4% after notching its first three-month winning streak for the first time this year.

Markets were also focused on a series of manufacturing readings to gauge the economic health of some major EMs.

Czech manufacturing declined further in September and Hungary's manufacturing activity contracted for a fourth straight month, while Poland's manufacturing sector showed signs of stabilisation, with the downturn easing for the third consecutive month.

While the Czech crown edged 0.1% lower against the euro to stay at its August lows, the Polish zloty firmed 0.1% and the blue-chip index dropped 1% ahead of its monetary policy decision on Wednesday.

Among others, Turkish factory activity contracted for the sixth month in a row in September, with output, employment and purchasing activity all declining.

The South African rand weakened 0.2% against the dollar, ahead of its domestic manufacturing PMI data.

Meanwhile, Sri Lanka is set to have detailed talks with the IMF on the framework of a $2.9 billion bailout programme on the sidelines of the lender's annual meetings in Washington later this month.

The country's benchmark index climbed 1% to its July highs, with the rupee hitting its highest level since June 2023 against the greenback.

HIGHLIGHTS:

** Global investors call time on their exodus from China

** Jamaica cuts interest rate by 25 basis points

** Czech government majority set to shrink after minister dismissed

** Saudi Arabia expects 2024 deficit to widen to 3% of GDP

(Reporting by Ankika Biswas in Bengaluru, Editing by William Maclean)