* Hopes of more U.S. government spending buoy markets

* EU summit eyed for recovery fund deal

* EM stocks index set for worst week since late April

* Russian rouble underperforms peers

By Shreyashi Sanyal

July 17 (Reuters) – Emerging market stocks bounced back on Friday, as hopes of stimulus helped ease economic worries amid surging COVID-19 cases, although U.S.-China tensions kept a gauge for the shares on course for its biggest weekly decline in three months.

Market participants are betting on U.S. policymakers to adopt more stimulus measures as the world’s largest economy struggles to contain the epidemic, with Congress set to begin debating a package next week.

MSCI’s index for developing world stocks rose 0.6%, but was set for a 1.6% weekly decline, its worst week in nearly three months as virus infections surged in the United States, India, Russia and Brazil. The ongoing dispute on trade and other issues between Washington and Beijing also hammered risk sentiment.

“Further fiscal stimulus could give the bull market fresh legs, with equities having already priced in the current unprecedented monetary policy support,” FXTM market analyst, Han Tan, wrote in a client note.

Central and eastern European markets watched for developments around the EU recovery fund, as a summit commenced on Friday where EU leaders will discuss a proposed stimulus deal to kick-start economic growth.

Currencies in Hungary, Poland, the Czech Republic and Romania were flat against the euro.

Dutch opposition and the threat of a Hungarian veto weigh on chances for a deal on the EU’s 2021-27 budget envisaged at slightly above 1 trillion euros and an attached new recovery fund worth 750 billion euros meant to help rebuild the southern economies affected the most by the crisis.

The Russian rouble was rangebound and has underperformed its peers for the week, pressured by declining oil prices and Washington’s sanctions on individuals and entities tied to Russian President Vladimir Putin.

“Most market participants would view these sanctions as falling within a moderate range or being already priced in, nevertheless, the developments are triggering mild rouble underperformance at the moment,” said Tatha Ghose, FX & emerging markets analyst at Commerzbank.

Britain’s National Cyber Security Centre (NCSC) said on Thursday that hackers backed by Russia were trying to steal COVID-19 vaccine and treatment research from academic and pharmaceutical institutions around the world.

The Turkish lira was flat against the dollar, while the South African rand firmed.

For GRAPHIC on emerging market FX performance in 2020, see tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2020, see tmsnrt.rs/2OusNdX

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For CENTRAL EUROPE market report, see

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For RUSSIAN market report, see (Reporting by Shreyashi Sanyal in Bengaluru Editing by Raissa Kasolowsky)

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