Emerging stocks and several central European currencies rose
on Tuesday on optimism the European Central Bank will intervene to curb
peripheral debt yields, though the Romanian leu fell after a court decision
likely to prolong political uncertainty.

The European Central Bank poured cold water on a report over
the weekend that it was considering capping inflamed borrowing costs by buying
struggling euro zone countries’ bonds if they breached a certain level.
Nevertheless hopes for intervention remain high.

The fortunes of emerging European markets are closely linked
to those of the crisis-hit euro zone, though these markets have also attracted
flows diverted from the currency bloc.

“Euro-based EM currencies have enjoyed a happy summer,” said
SocGen analysts in a client note.

“It strongly looks as if … (they) have benefited from the
diversification from western European investments.”

The Hungarian forint rose half a percent against the euro
towards recent 11-month highs and the Czech crown hit its highest since early
May. Emerging stocks rose 0.7 percent, with Russian stocks jumping more than 2
percent, helped by higher oil prices. Emerging sovereign debt spreads were
trading at five-month lows.

The Romanian leu fell 0.2 percent after Romania’s
Constitutional Court invalidated a referendum to impeach suspended President
Traian Basescu on Tuesday, a decision that would return him to office and could
prolong his power struggle with prime minister Victor Ponta.

Romanian debt insurance costs, however, were trading at
their lowest in more than three months in the five-year credit default swap
market, according to Markit.

Markets in Turkey, Nigeria and the Gulf were closed for
holidays on Tuesday.