EMERGING MARKETS-EM stocks on pace for best month in about two years, FX also rally in September

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EM stocks and FX positioned for monthly gains

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Polish CPI in September lower than expected

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Indian Rupee hits record low

By Nikhil Sharma

Sept 30 (Reuters) - Emerging market stocks edged higher on Tuesday, nearing their best monthly performance in nearly two years, while currencies also firmed in a month largely dominated by key central bank decisions.

The MSCI index of emerging market equities rose 0.4% for the day, taking its monthly gains to 6.9% - eyeing its best month since November 2023.

A parallel index for regional currencies remained steady and was up 0.43% month-to-date, set for its second straight monthly rise.

But, a spectre of caution also loomed as investors feared a U.S. government shutdown, which could delay the issue of Friday's key U.S. employment numbers and complicate the outlook for the Federal Reserve.

"We think we could be in line for a repeat of that (Liberation Day uncertainty) over the coming weeks if this government shutdown is not averted," said Nick Rees, head of Macro Research at Monex (MNXBF).

"So we think that's likely to be the big driver, at least in the short run, for most of the FX markets with obvious spillovers to emerging markets."

In Central-Eastern Europe, Romanian stocks outperformed their peers and jumped 3.9% this month. The country's new pro-EU government continues with its efforts to reduce a budget gap that reached over 9% of gross domestic product last year - more than triple the EU-mandated 3% limit.

The local currency leu was largely flat this month.

In Hungary, the currency forint was largely unchanged on Tuesday, but up 1.4% month-to-date as the currency continues to leverage high interest rates, which currently stand at the European Union's highest of 6.5%.

Last week, the National Bank of Hungary left its base rate steady and stressed the need for tight policy to curb inflation, which appears to be rising in the 2026 election year.

The currency is among the top regional performers in September. Budapest equities were down 0.56%, taking their monthly losses to 3.7% - among the worst in the region.

Fresh data showed Hungary's industrial producer price inflation slowing to 2.3% in August from 4.5% in July, while the country's foreign trade surplus narrowed marginally in August.

The Polish zloty was down 0.2% in September, as this month's quarter-point rate cut weighed. However, high state budget deficits for the economy dampened hopes for further easing. The currency was flat for the day.

Polish inflation in September came in slightly below expectations and remained at the same level as in August, raising hopes for a future rate cut.

Warsaw stocks declined 0.9% on Tuesday and were up 0.5% this month as the index struggled to find direction throughout September, oscillating between gains and losses.

The Czech crown edged down 0.24%, but jumped 0.4% for the month, marking its eleventh-straight monthly gains - a streak not seen at least since February 1999.

The currency benefited from the central bank's decision last week to extend its rate pause and signal the need for tight policy amid inflation risks. Prague stocks fell 0.45% on the day but rose 2.6% for the month.

Data showed the economy grew 0.5% quarter-on-quarter in the second quarter, while increasing 2.6% year-on-year.

Czech markets are now looking to this week's parliamentary elections, with the opposition ANO party of former Prime Minister Andrej Babis leading opinion polls ahead of the main centre-right ruling parties.

Elsewhere, the Indian rupee traded at record lows on Tuesday amid the central bank's intervention. Investors also braced for a crucial Reserve Bank of India rate decision on Wednesday in view of simmering U.S.-India trade tensions.

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For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see (Reporting by Nikhil Sharma, Editing by Louise Heavens)