* Turkish, Russian stocks at record highs * USD sold off against risk assets * Polish zloty lags on rate-cut expectations Jan 4 (Reuters) - Turkey’s lira led gains across emerging market currencies on Monday as higher-than-expected inflation fuelled expectations of tight monetary policy, while stocks in the developing world hit a 13-year high as investors hoped for a swift economic recovery in 2021. The MSCI’s index of emerging market stocks jumped more than 1.1% to its highest level since late 2007, while the currencies index rose 0.6% to its highest level since early 2018, also benefiting from weakness in the U.S. dollar. Adding to the mood were signs of continued economic expansion in China, which saw the yuan jumping 0.9% to the dollar in its best day in nearly three months. The currency also breached a key technical barrier that could see the yuan extending last year’s strong gains. The Turkish lira rose about 1.2%, leading gains across currencies in Europe, Middle East and Africa. Higher-than-expected December inflation figures saw investors increasing their expectations of near-term interest rate hikes by the central bank. A year of double-digit inflation and a weak lira - which had touched a series of record lows in early November - had prompted the central bank to reverse an easing cycle and hike rates by 675 points since November. Other EMEA currencies such as Russia’s rouble and the South African rand rose 0.8% and 1%, respectively. The dollar was sold off heavily in favour of riskier assets. “Low interest rates and an improving economic outlook following vaccines rollout has led to further short selling in the dollar, particularly against the euro and Chinese yuan,” said Hussein Sayed, Chief Market Strategist at FXTM. While MSCI’s EM currencies index had gained in 2020, a bulk of its strength had come from Asian units. EMEA currencies had underperformed their Asian peers, as the rapid spread of the virus, loose monetary policy and geopolitical tensions made them less attractive. But stocks were a different story, as expectations of prolonged monetary policy easing and increased liquidity measures saw continued buying into equities. Turkish and Russian stocks hit record highs on the day. The MSCI’s EM stocks index had jumped nearly 16% in 2020, despite a rough start to the year. Central European currencies rose against the euro for the day, although the Polish zloty lagged its peers after a central banker said he would support further interest rate cuts if necessary. Interest rates in Poland were cut to record lows last year due to the pandemic, and could potentially turn negative with more easing. For GRAPHIC on emerging market FX performance in 2021, see tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2021, see tmsnrt.rs/2OusNdX For TOP NEWS across emerging markets For CENTRAL EUROPE market report, see For TURKISH market report, see For RUSSIAN market report, see (Reporting by Ambar Warrick in Bengaluru; Editing by Krishna Chandra Eluri)