* Emerging stocks flat after U.S. Treasury yields rise
* Lat stays at one-year high vs euro in illiquid trade
* BTA CDS settlement may set stage for big investor haircut
By Sujata Rao
LONDON, June 11 (Reuters) - Emerging stock markets were range-bound at slightly weaker levels on Thursday after a sharp rise in U.S. Treasury yields and a pause by core equities while in Latvia the currency hovered at a one-year high versus euro.
A rebound in oil prices to eight-month highs and a weak dollar in recent weeks boosted emerging stocks and currencies, despite a devaluation scare in Latvia, but a Treasuries slide this week has made investors hesitant to advance further though most analysts rule out a major reversal.
"Some of the sell-off we saw in the past week was related to bond yields going up and some inflation concerns but on the other hand, we also had whispers of very strong numbers that will come out in China and that has kept some investors constructive on emerging markets," said Michael Wang, emerging markets strategist at Morgan Stanley in London.
"It will be about what we get in terms of retail sales (in the United States)," he added, referring to data due at 1230 GMT that are expected to show a U.S. retail sales rise for the first time in three months.
Emerging equities were broadly flat, staying off the eight-month highs hit at the start of June and have gained less than 2 percent so far this month <.MSCIEF>.
Emerging sovereign debt on the JP Morgan EMBI Plus index <11EMJ> saw spreads tighten five basis points versus Treasuries to 408 bps.
Investors are watching to see the results of a 30-year Treasuries auction later on Thursday.
LAT FEAR FADING
In eastern Europe, currencies see-sawed around flat as fears
about Latvia's currency abated slightly, and the Hungarian
forint hovered just off the three-week high hit against the euro
The lat stayed at a one-year high versus the euro, albeit in
illiquid trade
Traders say that will be key to kick-starting trade as the central bank's recent lat buying has left banks short of lats.
"Lats have been taken out of the system and that is the main reason for the strength of the lat. We are close to the intervention level, the only way out will be some intervention," said Kristaps Strazds, head of money and FX trading at SEB in Riga.
As risks fade, the cost of buying insurance against a Baltic default continued to slip -- Estonian credit default swaps fell 20 basis points while Lithuania slipped 13 bps.
The dollar crosses however were benefiting from the weak
greenback, with the lira up 0.7 percent
"Emerging currencies are doing reasonably well but 90 percent of this is down to dollar moves. For instance, the lira/rand cross is stable which is indicative that not much is happening specific to these markets," said a trader in London.
In bond news, investors were still digesting news that credit default swaps of Kazakh bank BTA were valued at just 10.25 percent in a Wednesday settlement auction, meaning protection sellers must pay out over $700 million.
The number came as a surprise as BTA's cash bonds have been trading at 20 to 30 cents to the dollar and the clearing price likely indicates a 90 percent haircut for bondholders.
"These will inevitably put some pressure on the bonds/loans recovery, but not to the extent of dampening it to much lower levels," Barclays Capital said in a client note.
BTA, Kazakhstan's largest bank, defaulted in April and has been trying to restructure up to $15 billion in debt. (Additional reporting by Carolyn Cohn; Editing by Toby Chopra)