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July 29 (Reuters) – Emerging market stocks gained on Monday, while major currencies slipped against a stronger dollar as investors looked ahead to a week packed with key central bank policy decisions and assessed a potentially escalating conflict at the Israel-Lebanon border.

MSCI’s index of emerging markets (EM) stocks jumped 0.6%, tracking global stocks higher as equities recovered from a Wall Street led sell-off last week. 

Meanwhile, the likelihood of widening conflict in the Middle East also weighed on sentiment, after the U.S. and Israel blamed a rocket strike in the Israeli-occupied Golan Heights on the Iran-backed Lebanese militant group Hezbollah.

Oil rose, while the shekel dropped to a more than three-week low against the dollar.

EM currencies broadly slipped against a strong dollar, with the Polish zloty and Hungarian forint down 0.5% and 0.4%, respectively. MSCI’s broader gauge of EM currencies was little changed on the day.

Rate decisions are due this week from a number of major central banks, with emerging market investors particularly focusing on the U.S. Federal Reserve and the Bank of Japan.

The Fed is widely expected to keep rates on hold at its meeting this week, with all focus on whether policymakers signal they could start easing policy in September, while the BOJ will be watched for a potential rate hike and any further changes to its bond-buying programme.

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“Should the BoJ tighten monetary policy further, the yen would benefit from that and the selling pressure on high yielding EM currencies could resurface or intensify,” said Piotr Matys, senior FX analyst at InTouch Capital Markets.

“That said, the Fed may provide some relief if the overall message is relatively dovish (or) far less hawkish, cementing market expectations for a September rate cut.”

Meanwhile, the Czech crown edged 0.2% lower against the euro ahead of a central bank policy decision later this week.

“The consensus expectation is for the CNB to slow down the pace of easing at this week’s meeting by lowering the policy rate by 25 basis points, yet another 50 bps move cannot be completely excluded,” Matys said.

Emerging market stocks had clocked their second week of declines on Friday, losing more than 1.5%, as a move out of expensive U.S. technology megacaps sparked global equity declines. Wall Street indexes recovered some ground on Friday.

Wall Street’s recovery, combined with hopes for easing policy in the U.S., helped Asian stocks ex-Japan rise, though China’s Shanghai Composite index closed flat ahead of a key Politburo meeting this week.

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Saudi Arabian stocks edged 0.1% lower, while Turkey’s BIST fell 0.5%.

Elsewhere, Indian stocks, briefly touched record highs, led by banking and energy stocks, and were last flat on the day.

Meanwhile, Ethiopia’s birr slumped 30% against the dollar after the central bank floated the currency.

(Reporting by Lisa Mattackal in Bengaluru; Editing by Alex Richardson)