By Patricia Lui and Frances Yoon May 10 (Bloomberg) -- Emerging-market stocks gained, after the worst weekly drop in more than a year, and currencies rallied as European leaders agreed on a loan deal worth as much as 720 billion euros ($928 billion) to stop Greece’s fiscal woes from spreading. The MSCI Emerging Markets Index climbed 1 percent to 935.89 at 9:02 a.m. in Hong Kong after a five-day drop of 9.1 percent that was the worst performance since February 2009. South Korea’s won climbed 1.7 percent to 1,135.6 per dollar, the biggest gain in a year, while Malaysia’s ringgit advanced 1 percent to 3.238 per dollar. European Union finance ministers agreed to a 500 billion- euro aid package that may be topped up with an additional 220 billion euros from the International Monetary Fund, according to Spanish Economy Minister Elena Salgado. Companies in the 22- country MSCI gauge lost more than $730 billion of market value since April 15 as investors speculated spending cuts and tax increases by European governments, including Greece, will curb corporate profits around the world. “Asian currencies and markets are recovering on news of the European package,” said Richard Yetsenga, a global currency strategist at HSBC Holdings Plc in Hong Kong. “I would call this a normalization process. But we are not out of the woods yet.” South Korea’s Kospi increased 1.3 percent to 1,668.6. Overseas investors sold more Korean shares than they bought for a fifth day, following net sales of $2 billion last week. Brazil’s Bovespa Index slid 0.9 percent on May 7, while the Micex Index in Russia retreated 5.6 percent and Ukraine’s PFTS Index tumbled 8.3 percent. Bonds, Currencies Currencies already started to rebound that day, with the real strengthening 0.9 percent against the dollar and Turkey’s lira advancing 2.1 percent against the dollar. The extra yield investors demand to own developing nations’ securities over Treasuries fell four basis points to 3.28 percentage points on May 7, according to JPMorgan Chase & Co.’s EMBI+ Index. Developing nations’ bonds fell 3.1 percent last week, the biggest since October 2008, the EMBI+ gauge showed. Bonds rallied on improving appetite for higher-yielding assets. The yield on South Korea’s 4.25 percent note due in December 2012 fell six basis points to 3.67 percent. “It’s a positive reaction from the European stabilization package,” said Philip Wee, a senior currency strategist at DBS Group Holdings Ltd. in Singapore. “But we’re still in crisis mode. The markets are still deciding whether you can conclude that the worst is over.” Currency swaps in South Korea showed an easing in hoarding of dollars, the leading currency for global finance and trade. The one-year basis swap, in which two parties exchange floating interest rates for the dollar and the won, narrowed three basis points to minus 159 basis points. That compares with minus 99 basis points a month ago, signaling investors are willing to receive reduced won-interest payments to obtain dollars. To contact the reporters on this story: Frances Yoon in Hong Kong at fyoon2@bloomberg.net

Source