Shares steady, but caution remains over China growth and U.S. shutdown

(Reuters) - Emerging market shares steadied on Monday, helped by a Wall Street rally on Friday, but investors remained cautious as data showed China's 2018 economic growth was the slowest in 28 years, while developing world currencies fell against a firmer dollar.

MSCI's index for emerging market stocks <.MSCIEF> edged up to a 3-1/2-month high in early trading, with indexes in Johannesburg <.JTOPI> and India <.BSESN><.NSEI> leading gains.

China's economy cooled in the fourth quarter of 2018, under pressure from faltering domestic demand and bruising U.S. tariffs, pressuring Beijing to roll out more stimulus to avert a sharper slowdown.

Some respite came with better factory output and retail sales for December, helping mainland Chinese <.SSEC><.CSI300> and Hong Kong shares end higher as investors bet on the authorities providing further stimulus to prop up growth.

"Spill over from the U.S. markets on Friday and the slightly better retail and factory numbers in China have resulted in equities faring better than expected today," said Morten Lund, macroeconomic analyst at Nordea Markets.

"Caution still remains on the overall effect of slowing Chinese growth along with the impact of the U.S. shutdown on the markets," he added.

The U.S. government shutdown continued, with Democrats rejecting President Donald Trump's "compromises" in exchange for funding for his security wall along the Mexican border, with stock markets slated to be shut for Martin Luther King Jr. day.

Moscow's MOEX index <.IMOEX> reversed early losses to climb 0.1 percent as energy stocks were helped by oil prices reaching a 2019 high on strong Chinese crude usage. [O/R]

Indian benchmark indexes were among the biggest gainers on the day, rising over 0.6 percent after a week of strong earnings for large-caps, with market heavyweight Reliance Industries Ltd extending gains to a second day.

A tepid dollar did little to reassure emerging currencies, with trade-exposed South Korean won falling to one-month lows and China's yuan on track to decline for the third session in a row.

Turkey's lira and Russia's rouble weakened over 0.3 percent, while South Africa's rand nearly matched those falls.

In Eastern Europe, Romania's leu was trading at record-low levels against the euro, as concerns remained over a new tax on banks' financial assets and other levies as well as fiscal uncertainty in the absence of a 2019 budget plan.

(Reporting by Agamoni Ghosh in Bengaluru; Editing by Mark Potter)

By Agamoni Ghosh