EMERGING MARKETS-EM assets wobble ahead of expected Fed cut as hawkish jitters grip markets

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Stocks down 0.6%, currencies flat

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US will allow Nvidia (NVDA) to export H200 processors to China

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Analysts weigh next Fed move after December cut

By Niket Nishant

Dec 9 (Reuters) - Emerging market stocks slipped on Tuesday as investors hunkered down ahead of a widely expected interest rate cut by the Federal Reserve, turning their attention to whether policymakers will pair the move with hawkish guidance.

The MSCI index of emerging market stocks fell 0.6%, heading for its worst intraday decline in nearly two weeks if current levels hold. Its currencies gauge was flat.

For weeks, hopes of lower U.S. borrowing costs - which typically weaken the dollar, bolster appetite for higher-yielding currencies and reduce funding costs for regional companies - have underpinned sentiment toward emerging market assets.

However, some analysts expect that any cut could be accompanied by hawkish messaging from Fed Chair Jerome Powell, signalling a preference to pause and prompting investors to question how long the tailwind for emerging market assets can last.

"The December meeting will likely have a few hawkish elements," said Goldman Sachs chief U.S. economist David Mericle, pointing to the uncertainty surrounding the Fed's next moves after policymakers were deprived of official data during the federal government shutdown.

"(Federal Open Market Committee) participants will be even more uncertain than usual about what will be appropriate at their next meeting and even less able to pre-commit because we are now two employment reports behind schedule," he added.

FRAGILE OPTIMISM

With rate optimism already baked into markets over recent weeks, even a small flare-up in geopolitical or trade tensions could quickly sour sentiment.

U.S. President Donald Trump on Monday threatened an additional 5% tariff on Mexico if it fails to swiftly provide more water for U.S. farmers, underscoring that tariff risks still loom over markets even if the noise around them has lately been drowned out by Fed-related headlines.

Ukraine's dollar-denominated bonds were slightly higher. President Volodymyr Zelenskiy said the country will present a revised peace plan to the U.S. on Tuesday, aimed at ending Russia's war.

In Asia, Thai equities climbed 0.5% after a nearly 1% drop in the previous session, even as fighting between Cambodia and Thailand escalated along their contested border. The Thai baht was little changed against the dollar.

Chinese stocks were weaker, with the benchmark Shanghai Composite Index dipping 0.4% and the blue-chip CSI 300 Index falling 0.5%.

The U.S. will allow Nvidia's (NVDA) H200 processors, its second-best artificial intelligence chips, to be exported to China, Trump said on Monday.

Elsewhere, the Hungarian forint hit its lowest in more than two weeks and was last down 0.3% against the euro. The annual headline inflation fell to 3.8% in November, compared with the 4% increase analysts polled by Reuters had forecast.

Last week, Fitch Ratings cut Hungary's credit rating outlook to "negative", citing a worse trajectory for public finances.

The Czech crown was little changed while stocks scaled another record high. President Petr Pavel appointed billionaire leader of the populist ANO party Andrej Babis as the new prime minister on Tuesday.

(Reporting by Niket Nishant in Bengaluru; Additional reporting by Marc Jones in London; Editing by Janane Venkatraman)