EMERGING MARKETS-EM stocks edge up, FX steady as investors assess Middle East flare-up

* MSCI EM equities headed for strongest quarter since 2009

* Bolivia will adopt a flexible exchange-rate system

* Hungary's 2026 deficit may top 7% of GDP, prime minister says

* Serbian assets in focus after Vucic offers early elections

By Ragini Mathur

June 29 (Reuters) - Emerging-market stocks edged higher on Monday while currencies held broadly steady, as investors weighed a brief flare-up in Middle East tensions against lingering doubts over a fragile ceasefire in the region.

The MSCI emerging-market equities index rose 0.2%, while its currency counterpart was little changed.

A pause in the latest exchange of attacks in the Middle East offered some relief to markets. But the mood remained fragile, with investors also weighing stretched technology valuations, a stronger dollar and the prospect that resilient U.S. growth could keep Federal Reserve rates elevated for longer.

Oil prices, which have surrendered nearly all their gains since the U.S.-Israeli conflict with Iran flared in late February, initially rose on renewed hostilities before easing as prospects for fresh talks raised hopes of salvaging an interim deal.

That helped steady sentiment in oil-sensitive emerging markets, though Asian equities remained under pressure as the region's high-flying technology shares continued to retreat.

"As we move into Q3, the focus is already turning to shifting geopolitics, a strong U.S. economy, the potential for fresh Federal Reserve rate hikes, and a selloff in tech stocks that is particularly acute in Asia," said Kathleen Brooks, research director at XTB.

South Korea's KOSPI, a bellwether for the artificial-intelligence trade, fell as much as 3.4% after losing 7% last week, before paring losses to close 0.2% lower.

On the other hand, Taiwan stocks gained 1%. The index is up 56% this year, making it the region's second-best performer behind the KOSPI's 97% rally.

Those outsized gains in South Korea and Taiwan have powered the broader MSCI emerging-market equities index, leaving it on track for its strongest quarter since 2009.

In central Europe, Serbian assets were in focus after thousands of protesters gathered in Kraljevo on Sunday, maintaining pressure on President Aleksandar Vucic a day after he said he would step down within weeks to allow early presidential and parliamentary elections.

Although many protesters welcomed Vucic's planned resignation, some fear he may try to retain influence behind the scenes. Serbia's dinar was flat against the euro.

Elsewhere in emerging Europe, currencies weakened against the euro but were broadly steady versus the dollar. Regional shares edged lower, with Hungary's benchmark down 0.6%, while the forint slipped 0.2%.

Hungary's 2026 budget deficit could exceed 7% of economic output even if the country secures billions of euros in European Union funding, Prime Minister Peter Magyar said.

Turkish stocks fell 0.3%, while the lira was steady.

In South Africa, the rand edged 0.2% lower as gold, a key export, eased, while Johannesburg's main share index rose 0.9%.

Meanwhile in other EMs, Bolivia will adopt a flexible exchange-rate system, the government said on Friday, effectively devaluing the currency by ending a 15-year dollar peg in a major policy shift aimed at restoring economic stability.

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For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see (Reporting by Ragini Mathur and Utkarsh Hathi in Bengaluru; Editing by Sharon Singleton)