EMERGING MARKETS-Valuation worries drag EM stocks to two-week low; Poland rate call looms

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EM stocks down 0.8%, FX down 0.06%

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Israel's 2026 budget may hold key to government's survival

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China bans foreign AI chips from state-funded data centres

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Czech inflation picks up in October

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Polish central bank decision due later in the day

By Pranav Kashyap

Nov 5 (Reuters) - An emerging market stocks index stumbled to a two-week low and currencies lost ground on Wednesday, as jittery investors pulled back from risk amid mounting valuation concerns, while Poland prepared for an expected rate cut.

The Polish zloty was set to snap a six-day losing streak - its longest in over one year, while Warsaw's benchmark index rose 0.3%, as investors geared up for a widely expected 25-basis-point rate cut by the National Bank of Poland.

The move would lower borrowing costs to 4.25%, marking another step in the central bank's easing cycle.

Poland's inflation came in softer than forecast at 2.8% year-on-year in October, preliminary data had showed. That's the fourth straight month within the central bank's target range of 2.5% ?1 percentage point - reinforcing bets on further monetary loosening.

"We will watch the statement to see if anything changes to the 'rate adjustment' wording and what the new inflation forecast will show given the lower numbers in recent months and the government's freeze on energy prices for the coming months," said Chris Turner, global head of markets and regional head of research, UK and CEE at ING.

Thursday's press conference by Governor Adam Glapinski will be key, he added.

Consumer prices in the Czech Republic rose 0.5% month-on-month in October, lifting annual inflation to 2.5%, according to preliminary data - a reading that strengthens the case for the central bank to keep interest rates unchanged at its Thursday meeting. Economists polled by Reuters widely expect the benchmark rate to hold steady at 3.5%.

The Czech koruna edged higher, while Prague stocks rose 0.4%.

Meanwhile, South Africa's rand was just off an over-one-month low, while stocks hovered at over-one month lows. Fresh PMI figures showed private sector activity contracted for the first time in seven months in October.

VALUATION FEARS TRIGGER RISK-OFF MOOD

A broad gauge of emerging market stocks extended its slide for a second straight day, shedding nearly 1% to hit its lowest level since October 20. Meanwhile, a similar index tracking EM currencies fell for the fifth consecutive session, at its lowest point in over three weeks.

Overnight, Wall Street's top banks sounded the alarm on a potential equity market correction, citing stretched valuations. The CEOs of Morgan Stanley (MS) and Goldman Sachs (GS) stoked fears of a looming bubble, fuelling a risk-off sentiment.

Asian markets bore the brunt, with South Korean and Taiwanese equities leading the declines. Seoul's benchmark tumbled nearly 3%, its sharpest daily drop in over three months, while Taipei stocks notched their biggest loss in more than a month.

China's equity markets bucked the global downtrend, with the CSI 300 rising 0.5% and the Shanghai Composite edging up 0.2%. The gains came after the State Council's tariff commission announced a one-year suspension of its 24% additional levy on U.S. goods - though a 10% tariff remains in place - following last week's meeting between Presidents Xi Jinping and Donald Trump.

In a setback for U.S. chipmakers, Reuters reported that Beijing has issued guidance requiring new state-funded data centers to use only domestically-produced AI chips, signalling a push to reduce reliance on American technology.

Israel's shekel slipped to an over one-week low, while Tel Aviv stocks fell 0.5%. Finance Minister Bezalel Smotrich said late Tuesday that the cabinet is expected to vote on the long-delayed 2026 state budget next month. However, the proposal faces stiff political resistance, raising the spectre of fresh elections.

Elsewhere, The Republic of Congo is set to tap global debt markets with a $670 million Eurobond - its first in nearly two decades - according to a statement released Monday. Meanwhile, Nigeria is eyeing a $2.25 billion Eurobond issuance, bookrunner Chapel Hill Denham said. (Reporting by Pranav Kashyap in Bengaluru; Editing by Conor Humphries)