EMERGING MARKETS WEEK-Soaring commodities to weigh on prices

Soaring commodity prices, so far a key supporter of emerging markets performance, may weigh on the high-yielding asset class this week as sky-high energy a and food costs threaten global growth.

With a barrel of U.S. crude oil at an all-time high of more than $138, investors are becoming increasingly concerned that inflation will force central banks to raise interest rates more aggressively, compromising growth.

"So far high commodity prices have been a positive factor, but I think we are getting to a point where this is going to reverse, at least in the short term," said Ricardo Amorim, New York-based executive director for emerging markets in WestLB.

"Inflation concerns will likely hurt the global growth outlook, weighing on global credit markets," added Amorim, who is responsible for managing WestLB's portfolio in emerging markets.

Emerging markets equities lost 2.25 percent last week on the benchmark Morgan Stanley's MSCI index .MSCIEF. More than half of those losses came on Friday, when the barrel of oil jumped more than 8 percent, leading the CRB commodities index .CRB to close at its highest level ever.

Yield spreads between emerging markets bonds and U.S. Treasuries, seen as an important measure of risk aversion, widened 11 basis points for the week, 10 basis points of which only on Friday, according to the JPMorgan EMBI+ index 11EMJ.

Still, emerging debt returns remained little changed for the week, keeping year-to-date gains of 2.1 percent intact.

High commodity prices have been key drivers for the good performance of emerging markets this year, as investors hope global demand for raw materials would continue to support growth in developing countries, which export them.

http://www.reuters.com/article/fundsFundsNews/idUSN0831575920080608

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EMERGING MARKETS WEEK-Soaring commodities to weigh on prices