EMERGING MARKETS WEEK-More losses seen as G20 plan uncertain

By Walter Brandimarte

NEW YORK, Nov 16 (Reuters) - Emerging-market investors are bracing for more losses and volatility this week after a much-expected meeting of world leaders in Washington ended on Saturday with a global economic rescue plan of uncertain implementation.

The Group of 20 major industrialized and developing nations pledged "rapid action" to support growth and stabilize financial markets, but left it to national governments to tailor their own initiatives.

Analysts said investors expected world leaders to better coordinate their actions to stimulate the economy, and to commit to more multilateral financing to emerging economies, which have been dragged into the crisis during the past couple of months.

Without prompt government intervention, emerging markets are set to remain trapped in the same downward spiral that has dominated price action during the past few weeks, they warned.

"A vicious circle -- whereby yesterday's returns affect today's flows, which in turn affect tomorrow's returns -- has created a dangerous momentum that may need a few weeks of modest but steady gains to bottom out," Barclays Capital analysts Andrea Kiguel, Eduardo Levy-Yeyati and Mauro Roca wrote in a research note.

"It may take until the end of the year for this unwinding momentum to revert -- perhaps in January, as investors switch from survival to recovery mode," they added.

The MSCI stock index for emerging markets <.MSCIEF> fell an additional 6.1 percent last week, while emerging debt spreads over U.S. Treasury notes, a key gauge of investors' aversion to risk, widened 61 basis points to 670 basis points on the JP Morgan EMBI+ index <11EMJ>.

Emerging market currencies also suffered, with the Brazilian real ending some nearly 5 percent weaker for the week. The Russian ruble lost about 1 percent of its value in the same period, even as the central bank sold around $16 billion to support it, according to dealers' estimates.

Investors are growing increasingly nervous that a major emerging-market economy could succumb to the global crisis, hurting even the best-prepared developing nations.

"Concerns are building that a deep and sustained recession in the United States, European Union, and Japan could trigger a hard landing in one or more of the BRIC's or larger emerging-market economies, exerting a material negative contagion impact even on countries with strong fundamentals," RBC Capital Markets said in a research note.

Investors are particularly concerned about capital outflows from Russia, which has already burned one-fifth of its foreign reserves to support the ruble in the past three months.

A maxi-devaluation of the currency, or a slew of corporate and bank defaults in Russia would have a devastating effect on smaller Eastern European economies, which would need significant financial aide from multilateral organizations to survive.

Meanwhile, a slump in the prices of raw materials seems to be the main problem for commodity-exporting Latin American nations.

Pressured by the outlook of lower oil revenues in 2009, Ecuador on Friday decided to use a 30-day grace period to decide whether to pay a $30.6 million coupon on its global 2012 bond that was due on Nov. 15.

Analysts said the move by Ecuador speaks more of its weak willingness to keep servicing debt, since the country's cash position is still strong.

The government decision on whether to pay the debt will depend on the conclusions of a report due on Nov. 20 about the "legitimacy" of the bonds. (Editing by Tim Dobbyn)