The MSCI Emerging Markets Index dropped 0.6 percent to 958.87. The Shanghai Composite Index declined from a two-month high as China Citic Bank Corp. drove a slump in financial shares, while the yuan sank to the lowest level this year. Brazil’s Ibovespa erased earlier gains as BR Properties SA led losses in real-estate shares. The ruble fell as investors speculated central-bank support for the currency will diminish.

Equities retreated after China’s central bank sold repurchase contracts for the first time since June as money-market rates sank to the lowest levels in at least three months. Volatility in money-market rates will persist and borrowing costs will rise, the nation’s central bank signaled Feb. 8. Stocks also fell as data showed that confidence among U.S. homebuilders plunged in February by the most on record.

“There’s a cloud over China’s financial system and the overall outlook for growth,” Paul Zemsky, the head of multi-asset strategies at ING U.S. Investment Management, which oversees $200 billion, said by phone from New York. “That just adds to the uncertainty around emerging markets.”

The iShares MSCI Emerging Markets Index exchange-traded fund retreated 0.9 percent to $39.29. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index advanced 5.5 percent to 25.29.

Brazil, Russia

Brazil’s Ibovespa (IBOV) dropped for a second day as BR Properties sank amid an unexpected loss. The nation’s swap rates sank as central bank President Alexandre Tombini said inflation will converge with the target, easing bets policy makers will keep raising borrowing costs.

Russian stocks reversed an earlier advance as OAO Rostelecom dropped after a report that the country’s biggest fixed-line phone operator may reduce its minority buyout ratio. The ruble dropped to an all-time low against Bank Rossii’s target basket of dollars and euros.

The Borsa Istanbul 100 Index sank as Turkey left its three main interest rates unchanged. Hungary’s forint dropped as central bank unexpectedly kept the pace of monetary easing.

The Shanghai Composite Index (SHCOMP) dropped as China Citic Bank slid the most in two weeks. Conducting repos is “a hawkish move highlighting the central bank’s determination to tighten monetary policy via liquidity tools,” said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB.

India’s stocks rose to a three-week high amid optimism the government’s pledge to narrow the fiscal gap will revive growth. Thailand’s baht weakened the most in six weeks, while Indonesia’s rupiah dropped the most since December.

The premium investors demand to own emerging-market debt over U.S. Treasuries rose three basis points, or 0.03 percentage point, to 340 basis points, according to JPMorgan Chase & Co.

To contact the reporters on this story: Julia Leite in New York at jleite3@bloomberg.net; Maria Levitov in London at mlevitov@bloomberg.net; Zahra Hankir in London atzhankir@bloomberg.net

To contact the editor responsible for this story: Tal Barak Harif at tbarak@bloomberg.net

http://www.bloomberg.com/news/2014-02-18/emerging-currencies-fall-as-baht-slides-while-china-shares-drop.html

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