* Brazil, Latin America-focused funds top EM equity rankings
* Chinese equity funds bring up the rear
* EM debt funds benefit from hunt for yield, Fed repricing
* TABLE-Leaders and laggards in H1 2016:
By Claire Milhench
LONDON, July 18 (Reuters) - Top performing Latin America-focused equity funds delivered returns of over 40 percent in the first half of 2016 thanks to a stunning rebound in Brazil, while emerging debt funds are expected to continue to do well in the next six months.
Latin American markets are unlikely to repeat their first half feat in coming months but so far in 2016, Brazil's stocks, bonds and currency are among the world's best performing assets, as the ousting of President Dilma Rousseff encouraged investors to buy into a reform-led turnaround story despite a severe recession.
Brazil or Latin America-focused funds filled eight of the top 10 spots in a league table of EM equity fund performance in the first half, based on data from Lipper.
Three of these funds were among the worst performers in 2015 when Brazil was punished mercilessly.
"The dramatic improvement in sentiment towards the continent has been driven by a combination of political developments in Brazil, higher global risk appetite and a rebound in commodities," said Peter Taylor, senior investment manager for the Aberdeen Latin American equity fund.
His fund came second, returning over 45 percent, compared with an average performance of 6.56 percent for the Lipper Global EM equity fund sector as a whole.
Taylor said the fund had been structurally overweight Brazil for a number of years, with holdings such as Banco Bradesco and mall operator Multiplan performing well.
But he added that the market euphoria could be short-lived if the desire for rapid change was not met.
Frederico Tralli, manager of Parvest Equity Brazil, which came third, returning over 42 percent, also tempered the enthusiasm, saying the new government would have to manage market expectations whilst imposing unpopular reforms.
"We do not see any significant risk to the current positive scenario for Brazil, but we are more cautious regarding current valuations after the recent rally," he said.
Chinese equity funds brought up the rear of the EM equity fund rankings, after Chinese mainland shares fell 15 percent in the first half of the year.
Emerging equities have risen 9 percent this year and are not expected to suffer much contagion from the foiled coup in Turkey, one of the big emerging economies.
For emerging bond funds, the double-digit returns at the top of the table were of a lesser magnitude than those achieved by many equity funds, but still impressive as currencies stabilised and investors sought out higher yields than those on offer in Western government bond markets.
The average performance for the Lipper Global EM bond fund sector was also better than the average equity fund performance, at 9.76 percent.
Emerging fixed income funds attracted some $12.1 billion in the first half of the year, according to estimates by JP Morgan, compared with outflows of $14.4 billion for 2015.
Mike Hugman, a strategist with Investec's EM fixed income team, said a recovery in commodity prices had helped terms of trade. This in turn underpinned currency appreciation.
Emerging debt also benefited as the U.S. Federal Reserve signalled it would not hurry to raise rates while negative bond yields on around $12 trillion of debt worldwide had propelled more investors into emerging markets, Hugman added.
Investec's local currency debt fund came third in the Lipper league table with a return of over 21 percent return.
Fund managers expect the sector to extend gains in coming months, given that more monetary easing is predicted in Japan, the euro zone and Britain.
"That will highlight the yield attractiveness of emerging markets and the still very high premium you're getting there," said Sally Greig, co-manager of the Baillie Gifford Emerging Markets Bond fund, which came second in the Lipper league table with returns of over 23 percent.
Greig expects interest rate cuts in countries such as Russia and Brazil where extreme volatility had forced rate rises. However, yields would decline in the second half of the year at a slower pace, she said.
"We are still in an environment where markets are quite fragile, and it's dangerous to be too rose tinted about the outlook. You can easily get something that knocks you off course." (Editing by Robin Pomeroy)