* MSCI includes Saudi Arabia, Argentina in EM indexes
* Emerging stock markets fall 1 percent
* China onshore yuan erases all 2018 gains
By Karin Strohecker
LONDON, June 21 (Reuters) - Trade tensions and a stronger dollar sent jitters through emerging markets on Thursday with currencies plumbing multi-month lows and stocks resuming their recent falls. China’s commerce ministry accused the United States of being “capricious” over bilateral trade issues, and warned that the interests of U.S. workers and farmers ultimately will be hurt by Washington’s penchant for brandishing “big sticks”.
On Monday, President Donald Trump threatened to hit $200 billion of Chinese imports with 10 percent tariffs if Beijing retaliates against a previous announcement to target $50 billion in imports.
MSCI’s emerging equity benchmark index weakened 0.8 percent, having now chalked up losses for six of the past seven sessions. Both China onshore and offshore indexes suffered losses of more than 1 percent, with Hong Kong closing at its lowest in six month.
“It’s of course the trade concerns here, we are looking for more escalations on trade dispute,” said Jakob Christensen, head of EM research at Danske Bank, adding markets were closely watching countries like India and Russia planning counter measures against Washington’s trade actions.
“Underlying (is) a negative mood, the rising U.S. rates, U.S. liquidity, the stronger dollar - all of which is weighing on emerging markets as well.”
Political tensions and pressure from the U.S. dollar scaling to its highest in 11 months pushed emerging market currencies into another sell-off.
China’s onshore yuan weakened against the dollar and broke through the 6.5 to the dollar level, erasing all the gains it had made this year. The central bank set its fixing rate to the weakest in more than five months.
Indonesia’s rupiah dropped 1.2 percent - its steepest daily fall in more than two years - after the country’s currency markets opened for the first time since June 8 and despite the central bank saying it was ready to act.
South Africa’s rand fell 0.8 percent, extending early losses after data showed the current account deficit widened more than expected in the first quarter to register its largest shortfall in two years.
Mexico’s peso, a weather vane for trade sentiment across emerging markets, weakened 0.8 percent. Markets are expecting the country’s central bank to raise its benchmark interest rate later in the day to the highest in more than nine years to counter a slump in the peso and match a U.S. Federal Reserve hike.
Meanwhile Saudi Arabia’s bourse rose 0.3 percent after index provider MSCI announced late on Wednesday that the kingdom’s bourse as well as Argentina will be joining its emerging markets indexes, sharply broadening the investor base for both countries.
Investment bank EFG Hermes calculated that Saudi Arabia could see $30-45 billion of portfolio inflows in the next two years if it reaches the same level of foreign ownership in stock markets as the United Arab Emirates and Qatar.
The index provider also said it will include the Kuwait in its review next year for a potential move to emerging from frontier markets.
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Reporting by Karin Strohecker, additional reporting by Riham Alkousaa, graphic by Claire Milhench; Editing by Toby Chopra