EMERGING MARKETS-Up on economy hopes; Russia lags on debt worry

* Russia lags emerging market gains on bad debt worries

* Polish zloty up 1 pct to lead emerging Europe FX gains

* Hungarian forint, Czech crown extend gains

By Sebastian Tong

LONDON, July 1 (Reuters) - Emerging assets firmed on Wednesday on a deepening conviction that the global economy has bottomed out but Russian equities sank on the threat of rising corporate loan defaults in the country.

The Polish zloty led broader eastern European currency gains to rise 1 percent versus the euro while Hungary's forint and the Czech crown extended previous day gains to hover at six-month highs.

Though the closely watched tankan survey of Japanese business sentiment in June proved weaker-than-expected, encouraging if unimpressive data from Chinese and euro zone manufacturers helped dispel some of the gloom. [ID:nT53503] [ID:nPEK138883] [ID:nL1596673]

Emerging shares <.MSCIEF>, which ended June with the best quarter on record with a 33-percent rise, were up 1 percent to 769.43 by 1150 GMT while emerging sovereign debt spreads tightened 2 basis points to trade at 422 bps over U.S. Treasuries.

An asset allocation poll by Thomson Reuters for June showed cash reserves at a 23-month low, indicating that money was being put to work. [ID:nLU647080]

The exception to the stronger tone in equity markets were Russian shares <.IRTS>, which slid 1.3 percent, failing to capitalise on oil's rise to above $71 a barrel. Concerns over Russia's bad debt are coming into focus as the amount of maturing corporate debt is expected to peak in the months ahead. Between July and September alone, Russian companies face over $12 billion in combined maturing senior bank loans and foreign-currency bonds. [ID:nL1657944]

Russian Prime Minister Vladimir Putin has ordered state banks to boost lending by as much as $16 billion and the country's budget deficit could top 6 percent next year on a recapitalisation of its banking sector. [ID:nLU50495]

"We're expecting non-performing loans to hit 20 percent but this should be less of a worry than it was a few months ago because of higher oil prices," said John Lomax, head of emerging markets equity strategy at HSBC.

"Individual companies may face refinancing problems but it's hard to envisage a systemic banking crisis that the Russian state can't cope with."

CURRENCIES RISE

South Africa's rand backed off from 11-month highs it touched against the dollar in the previous session, trading slightly weaker.

The country's purchasing manager's index rose for the second consecutive month in June, suggesting that the worst of the decline in its manufacturing sector might be over. [ID:nL1122159]

The brightening global economic outlook also bolstered emerging European currencies, sending the Polish zloty to a five-week high against the euro and helping the Czech crown hold its ground against the common currency.

The prospect of imminent interest rate cuts failed to weaken the Hungarian forint which remained at six-month highs versus the euro. A Hungarian monetary policymaker told Reuters that the central bank was on the brink of cutting interest rates. [ID:nLU174822]

Along with its regional peers, Romania's leu firmed 0.5 percent to a two-week high against the euro, shrugging off a 50 basis points interest rate cut by the central bank on Monday.

"Even the weakening effect of current monetary policy easing on the exchange rate is more than counterbalanced by the regional positive sentiment improvement...We expect the appreciation trend to reverse on the back of weak economic fundamentals and worsening imbalances," UniCredit said in a client note. (Reporting by Sebastian Tong; Editing by Toby Chopra)