* Emerging equities down 0.5 percent; Dubai, Greece weigh
* Dubai CDS surge, Nakheel bond falls to record low
* Central European FX steadies; rouble bucks weak trend
By Sujata Rao
LONDON, Dec 9 (Reuters) - Emerging stocks eased half a percent on Wednesday, weighed down by bearish newsflow from Dubai and Greece and compounded by growing doubts over the global economic recovery.
Fears that Dubai's debt crisis may not be as contained as earlier anticipated, reverberated as far as China, where Hong Kong's Hang Seng Index fell 1.5 percent, partly due to worries about locally listed HSBC's exposure to Dubai World's $26 billion debt restructuring.
A ratings downgrade for Greece on Tuesday and data showing a fall in German industrial production soured sentiment towards the euro zone this week, denting appetite for emerging markets and raising fears that more European ratings may also be cut. And euphoria generated by positive U.S. jobs data last week has evaporated following cautious comments on the economy by U.S. Federal Reserve Chairman Ben Bernanke.
The MSCI emerging equities index touched nine-day lows before paring losses.
"Markets are reacting to the explosion in Greek yields and the continuing negative news from Dubai as well as the Moody's report saying U.S. and UK public finances (rating) could test the 'AAA' boundary," said Robert Ruttman, emerging equities strategist at Credit Suisse in Zurich.
He said that comments by Bernanke and U.S. President Barack Obama hinting at more stimulus measures aimed at job creation are being seen as an indication the economy's continued weakness rather than a potential unleashing of more cheap cash.
"Going forward any negative news will weigh heavily as equity valuations have corrected from sharply oversold levels so the question now is: is the global recovery sustainable?" Ruttman added.
The spotlight within emerging markets is on Dubai's debt saga, with bondholders mobilising against the proposed $26 billion restructuring and rating agencies downgrading a raft of the emirate's corporates.
The cost of insuring Dubai debt surged higher, with five-year credit default swaps (CDS) up almost 50 basis points on the day, just off a nine-month peak of almost 650 bps hit on Nov. 27. The Nakheel Dec 14 $3.5 billion sukuk fell to record lows.
Currency forwards also reflected investors' fears for the region, with UAE dirham one-year forwards quoted at 80 points, back at levels quoted just at the end of November. The forward was quoted at one point before the Nov 25 announcement.
ROUBLE BUCKS TREND
Most other currencies were weak but the rouble bucked the trend to rise off the three-month lows hit earlier against its euro-dollar basket.
One trader said the rouble was merely recovering from earlier oversold levels -- it lost 2 percent on Tuesday and is off 6 percent from mid-November peaks but an oil price rally after some days of falls is spurring bargain hunters.
Central European currencies steadied from the falls seen earlier this week but stayed under pressure, disappointed by the poor German industrial data and the Greek situation.
Some support came from local data. The Czech economy contracted 4.1 percent in the third quarter on the year in line with estimates, while Hungarian gross domestic product fell less than expected by 7.1 percent on the year in the third quarter.
The forint fell to 9-day lows earlier in the session, then recovered marginally to trade 0.15 percent up versus the euro. However five-year CDS widened to trade about 16 bps 232 bps, on par with Greece. "The Greek downgrade has put the currencies under pressure, the Hungarian forint especially could be shaky," said Gyula Toth, strategist at Unicredit in Vienna.
Rates markets have also been feeling the heat from the rise in Greek yields after the downgrade.
Euro zone member Greece's credit default swaps are quoted now at 226 bps, while Greek five-year bonds are yielding 4.8 percent versus 3.2 percent for the Czech Republic and 5.8 percent for Poland -- a possible risk for central European funding costs in 2010.
Polish five-year yields for instance are around 3-month highs, having risen about 20 bps since the start of the month.
"People are looking at Greece where you are getting a better yield pick up but we are relaxed.. in fiscal terms (the central Europeans) are better placed," Toth said.
On sovereign bond markets, spreads on the EMBI Plus index fell four bps to 311 bps over weaker U.S. Treasuries.
(additional reporting by Carolyn Cohn; Editing by Toby Chopra)