LONDON, March 1 (Reuters) - Mixed factory activity data, a stronger dollar fueled by increased U.S. rate‑hike expectations, and weaker developed markets pushed emerging stocks lower on Thursday, while the South African rand hit a two-week low.

Manufacturing data from across emerging markets remained in expansion territory. China’s Caixin survey showed growth picked up to a six-month high in February, but Russian factory activity rose at its slowest pace since July 2016 and Turkey’s eased. Central and Eastern Europe also experienced slower growth, with Hungary, Poland and the Czech Republic all seeing dips in factory activity; Poland’s PMI was at a four-month low.

Liam Carson, emerging Europe economist at Capital Economics, said the falls in Central Europe appeared related to a drop in Germany’s index, the region’s key trading partner, which came in at a six-month low. "In both Poland and the Czech Republic, the new export orders components weakened markedly," he noted.

MSCI’s benchmark emerging markets stocks index was trading slightly down at around two-week lows as losses in some markets offset gains in others. Chinese mainland stocks gained 0.6 percent on the Caixin data, but Polish shares fell 1.5 percent to seven-month lows and Turkish shares slipped 1 percent. The lacklustre performance also reflected falls in developed markets following Tuesday’s hawkish-sounding comments from new Federal Reserve chair Jerome Powell, which revived fears that the Fed will tighten more quickly than previously expected. The comments boosted the dollar to a six-week high against a basket of currencies as traders priced in at least four rate hikes by the Fed in 2018. This weighed on emerging currencies, with South Africa’s rand the biggest faller, down 1 percent to two-week lows. The rand has weakened for three successive sessions, but Simon Quijano-Evans, an emerging markets strategist at Legal & General Investment Management, said this should be viewed in the context of strong performance since the start of December. “The rand has rallied so much versus peers that there was bound to be some sort of correction,” he said. “Much depends on the dollar itself now, but the rand classically has a weaker defence mechanism in the form of foreign exchange reserves.” Expectations of major structural reforms under new President Cyril Ramaphosa to kickstart South Africa’s sluggish economy boosted the rand to three-year highs in February. South Africa’s PMI rose to its best reading in nearly a year in February on increased company optimism. The appointment of former finance minister Pravin Gordhan as public enterprises minister has also raised hopes of a clean-up at state-owned firms. Following a downgrade to its credit rating by S&P Global on Wednesday, South African state utility Eskom said it was working on a turnaround strategy and had signed a $2-billion short-term loan with a consortium of seven local and international banks. But Eskom’s dollar-denominated eurobonds continued to fall across the curve. Turkey’s lira fell 0.4 percent, Russia’s rouble 0.6 percent and China’s yuan 0.3 percent. The Polish zloty underperformed its emerging Europe peers, weakening 0.3 percent against the euro. The European Parliament is due to vote today on whether to support a proposal by the European Union’s executive to punish the Polish government for backsliding on democracy. Ukraine’s state-owned energy firm Naftogaz said it would claim damages from Russia’s Gazprom for its failure to deliver supplies of prepaid gas to Ukraine. A Stockholm arbitration tribunal found in Naftogaz’s favour on Wednesday in a long-running legal battle. For GRAPHIC on emerging market FX performance 2018, see tmsnrt.rs/2e7eoml. For GRAPHIC on MSCI emerging index performance 2018, see tmsnrt.rs/2dZbdP5.

Emerging Markets Prices from Reuters — Equities
Morgan Stanley Emrg Mkt Indx: 1194.32, Net -0.87, % Chg -0.07, YTD +3.10
Czech Rep: 1118.48, Net -1.99, % Chg -0.18, YTD +3.74
Poland: 2326.93, Net -37.39, % Chg -1.58, YTD -5.46
Hungary: 38266.88, Net +154.88, % Chg +0.41, YTD -2.82
Romania: 8423.82, Net -28.59, % Chg -0.34, YTD +8.64
Greece: 828.65, Net -7.01, % Chg -0.84, YTD +3.28
Russia: 1274.32, Net -11.15, % Chg -0.87, YTD +10.39
South Africa: 51284.43, Net -99.02, % Chg -0.19, YTD -2.38
Turkey: 17872.70, Net -1078.06, % Chg -0.91, YTD +2.20
China: 3273.76, Net +14.35, % Chg +0.44, YTD -1.01
India: 34038.88, Net -145.16, % Chg -0.42, YTD -0.05