Emerging-market stocks and currencies rallied on Tuesday, with South Africa's rand touching a two-month high, as hopes of economic recovery and more stimulus helped investors look past U.S.-China trade tensions.

With many markets returning from a long weekend, MSCI's index of developing-market shares rose 1.3%. Its currency counterpart  gained for the sixth session in seven as increasing risk appetite weakened the dollar.

Chinese blue-chip stocks rose 1.1%, bolstered by a central bank pledge to strengthen economic policy and continue to push lower interest rates on loans. The yuan was flat.

Recovering from Friday's steep losses, Hong Kong stocks built on Monday's gains to post their best day in seven-weeks, up 2%.

Investors were watching for U.S. action after it warned China of new sanctions as Beijing went ahead with a new national security law on Hong Kong. 

"While there are looming geopolitical risks, it seems as though markets are currently pushing them onto the back burner, and will likely continue to do so until there is a new escalation or increased threat," said Bianca Botes, executive director at Peregrine Treasury Solutions.

More business activities restarted after coronavirus-induced lockdowns. India will attempt to resume domestic flights this week, while easing restrictions in South Africa allowed much of the economy to return to capacity.

Elsewhere, reports said Germany hopes to end a travel warning in June for trips to 31 European countries. Data on Monday showed improving business confidence in Germany, reinforcing hopes that further easing of restrictions would help the global economy emerge from what is expected to be a deep recession.

Stock indexes across central and eastern Europe, along with Russia and South Africa, rallied between 0.3% and 1.8%.

Oil prices rose on hopes of an output cut, helping Russia's rouble climb nearly 1% against the dollar even as the country reported a surge in new coronavirus cases. Russia's energy ministry said it sees global oil markets balancing in June.

South Africa's rand jumped 1.2% after two days of losses. Data showed the central bank composite leading business- cycle indicator rose by 0.7% month on month in March.

Markets in Turkey were closed for a holiday.

 

(Additional reporting by Olivia Kumwenda-Mtambo in JOHANNESBURG;) ((susan.mathew@thomsonreuters.com; +91-80-6749-1130;))