By Sujata Rao
LONDON, July 23 (Reuters) - Emerging currencies extended falls on Thursday, with many in Asia at multi-year lows on the back of U.S. rate hike bets while South Korea's poor economic data highlighted the developing world's growth slowdown.
Emerging equities fell 0.4 percent to nearly a two-week low, with the index now 3 percent down on the year.
Wednesday's solid U.S. housing data boosted expectations of a rate rise, pushing Asian currencies such as the Korean won, Thai baht and the Indonesian rupiah to the lowest in three-, six and 17-years respectively to the dollar .
Bearish bets against Asian currencies have surged in recent weeks, a Reuters poll showed.
"We believe that we are seeing a new wave of FX hedging on bond positions. This is clearly the case in dollar-Asia," Citi strategist Luis Costa told clients.
"The nature of this EM currency selloff is two-fold in our view: Fed fears and the commodities downtrend. We tend to be a lot more concerned with the commodities downtrend, because this is structural and it has come to stay."
Sentiment also took a knock after data showed South Korea's economy grew 0.3 percent in April-June over the previous quarter, the slowest since early-2009. It is the latest developing economy to post disappointing economic data.
The malaise is hurting funds investing in emerging markets, with Aberdeen Asset Management shares at one-year lows after the EM-specialist asset manager said investors withdrew $15 billion in the April-June quarter.
In emerging Europe, the rouble fell 0.7 percent to the dollar, hurt by oil weakness while the lira hovered near one-month lows as investors awaited the outcome of coalition talks between Turkish political parties.
The central bank is expected to hold interest rates steady on Thursday, as many see it keeping its powder dry in case the failure of coalition talks sparks a lira selloff.
The rand was flat, after Wednesday's softer-than-expected inflation data cast doubt on whether South Africa would resort to its first rate hike in a year. Economists are split on the rate rise possibility.
"We are in the 'hold' camp...the idea is that they will give a very hawkish signal. A lot of the factors supporting the hawkishness have reversed, like oil has worried them a lot, but that has changed," said Ilan Solot, a strategist at Brown Brothers Harriman.
"We think there are enough arguments for holding fire just now, and maybe raise later in the year."
Solot expects fresh elections in Turkey and added: "We think the lira will go back to test its (record lows) from June."