EMERGING MARKETS-EM stocks, FX hit two-week low as Iran-Israel conflict fuels risk aversion

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Turkey central bank expected to hold rates steady

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Indonesia's central bank intervenes in FX market

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EM assets hit by risk-off mood as Iran-Israel conflict rages on

By Medha Singh

June 19 (Reuters) - Emerging market stocks and currencies hit a two-week low on Thursday against a stronger dollar as the escalating Israel-Iran conflict drove investors toward safe-haven assets.

Oil prices rose and global stocks slid as Israel struck a key Iranian nuclear site and Iranian missiles hit an Israeli hospital. Meanwhile, President Donald Trump kept the world guessing about whether the U.S. would join Israel in airstrikes.

MSCI's index for emerging market equities fell 1.4%, while a parallel index for currencies eased 0.2%.

"Geopolitics is still front and centre for markets even as we are in the midst of a busy central bank week. The Israel-Iran conflict is now being viewed by investors through the lens of whether the US gets involved or not," said Neil Wilson, strategist at Saxo Markets.

Stock markets across the Middle East have tumbled following the bombing of Iran a week ago, with major indices in the UAE, Egypt, and Saudi Arabia posting sharp losses.

In a striking exception, Israel's financial markets appeared resilient, with the blue-chip Tel Aviv 35 index rising for the fifth day to fresh record high on Thursday. The shekel has recovered to 3.482 per dollar from a one-half month low of 3.680 on Friday.

The Turkish lira, among the worst performing currencies this year, dipped to a new three-month low at 39.565 per dollar ahead of a central bank meeting where rates are expected to remain steady.

After the jailing of Istanbul Mayor Ekrem Imamoglu sparked a sharp selloff in Turkish assets in March, the central bank hiked its policy rate to 46% from 42.5% in April, reversing an easing cycle that had begun in December.

The central bank will announce its next interest rate decision at 1100 GMT on Thursday.

U.S. Federal Reserve Chair Jerome Powell on Wednesday said inflation is expected to go up over the summer as President Donald Trump's tariffs work their way to consumer, further aiding the dollar's rise.

In Asia, the Philippine peso was largely unchanged near its two-month low after central bank cut its policy rate by 25 basis points as expected. The Taiwan dollar fell 0.3% after the central bank kept its policy rate unchanged.

Indonesia's central bank intervened in the foreign exchange market in a measured way, an official said after the rupiah had fallen to a one-month low against the U.S. dollar.

The South African rand dipped 0.1% largely in line with peers ahead of central bank's June Financial Stability Review, in which it evaluates risks to the country's financial stability and outlines the policy actions taken to mitigate them.

In Central Europe, the Romanian leu was trading largely unchanged at 5.0295 per euro and the Hungarian forint fetched 403.03, down 0.2%.

U.S. and Polish markets were closed on Thursday for a holiday.

The St Petersburg forum, Russia's biggest annual economic forum is currently underway. Russian Deputy Prime Minister Alexander Novak has said that he expected Prince Abdulaziz bin Salman, Saudi Arabia's energy minister to attend the forum on Thursday.

HIGHLIGHTS:

** Turkey central bank expected to hold rates steady, trim upper band

** Rwanda, DRC initial peace agreement ahead of signing next week

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(Reporting by Medha Singh in Bengaluru; editing by David Evans)