Turkey's lira and India's rupee rose 2 percent on Thursday and their stock markets surged as the Federal Reserve's surprise decision to sustain its monetary stimulus granted a lifeline to embattled emerging markets.
The BRICS - Brazil, Russia, India, China and South Africa - and other emerging countries have complained in the past few months that the threat of the Fed running down the amount of new cash it is pumping into the economy each month is hurting their economies.
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But the U.S. central bank's announcement on Wednesday that it would maintain its ultra-easy policy for now is expected to keep funds flowing into the high-yielding markets where investors have been putting the cheap Fed cash.
Even Armenia, whose economy depends heavily on aid, took advantage of the Fed surprise, selling a 7-year dollar bond at initial price thoughts of around 6.375 percent, according to Thomson Reuters news and information service IFR.
Brazil, India, Indonesia, Turkey and South Africa - dubbed the Fragile Five because they depend heavily on foreigners buying their stocks and bonds to finance their current account deficits - all enjoyed a market rebound on Thursday.
"We can assume this rally is going to last for some time, probably at least a few weeks," said Murat Toprak, emerging FX strategist at HSBC. "There is a reassessment by the market of monetary policy changes going forward."
Market expectations of when the U.S. central bank will start scaling back stimulus have now shifted to December.
Perceptions that U.S. interest rates could stay low for longer were reinforced by news from the White House that noted dove Janet Yellen was the front-runner to take over the Fed when Ben Bernanke steps down in January.
The lira rose nearly 2 percent and the rupee spiked up by more than 2 percent.
India could enjoy a 0.5-percentage-point boost to its economic growth in the near term thanks to the Fed, the finance ministry's top economic adviser told Reuters.
Turkey's finance minister Mehmet Simsek said in an interview with Reuters, however, that the Fed's decision would provide only temporary relief and Turkey must press ahead with plans to rebalance its economy.
And the rand fell nearly 1 percent, dropping from 4-month highs set on Wednesday, ahead of an expected no-change rate decision.
The MSCI emerging stock index rallied more than 2 percent to its highest since late May and was on course for its strongest one-day rise in two months.
Among hefty gainers, Turkish stocks <.XU100> soared more than 7 percent and Russian stocks jumped 4 percent. That followed overnight gains of more than 4 percent in Indonesian stocks , 3 percent in India and 2.5 percent in Brazil .
South African stocks rose 2 percent to record highs.
Emerging stocks are still in the red for the year but have trimmed 2013 losses to less than 3 percent and reversed most of the fall seen since May, when talk of U.S. monetary policy tightening started.
Emerging sovereign bonds rose, though spreads held steady at 342 basis points over falling U.S. Treasury yields, and debt insurance costs fell. Turkey's five-year credit default swaps dropped 30 bps to 166 bps, according to Markit, and South Africa fell 29 bps to 164.
Turkey mandated banks for its second sovereign sukuk issue, and state-owned Saudi Basic Industries Corporation also hired banks for a potential dollar bond.
Emerging European stocks <.MIEE00000PUS> leapt nearly 5 percent to six-month highs.
The zloty hit four-month highs against the euro and the forint hit two-month highs, with analysts saying it was time to sell low-yielding currencies in favour of emerging markets.
"The carry trade is on in EM FX and bonds for the next few months," said Charles Robertson at Renaissance Capital in a client note. "Buy all emerging markets for now."
(Editing by Ruth Pitchford)