* EM FX index set for best day in a month * Mainland China stocks up ~2.5% * S.African rand up 1%, Turkish lira firms 0.8% March 11 (Reuters) - Tame U.S. inflation data and well-behaved Treasury yields saw emerging stocks extend gains for a third straight day on Thursday, while emerging currencies were set for their best day in over a month. MSCI’s index of EM stocks was up 1.9%, taking it more than 4% above Tuesday’s low – staging a healthy comeback after dipping into correction territory earlier this week. The benchmark was lifted by healthy gains in Asia where China mainland stocks rose about 2.5% after better-than-expected data on new bank lending, while South Korean shares climbed 2%. Giving a leg-up to risk assets were declines in U.S. Treasury yields and the dollar, after data showed underlying U.S. inflation remained tepid. Successful debt auctions in the United States also helped tame bond yields with eyes on the auction of 30-year U.S. bonds on Thursday. Risk assets across the globe had sold off recently as worries about higher inflation sent U.S. bond yields higher at an alarming pace. Concerns persist that a $1.9 trillion coronavirus relief package in the United States set to be signed by U.S. President Joe Biden could overheat the economy. “Given that (the) $1.9 trillion COVID-19 relief bill cleared its final stages yesterday, the issuance of new government debt is expected to rise above the $3.6 trillion issued in 2020,” said Hussein Sayed, chief market strategist at FXTM. “This should keep yields rising from current levels, but it is the momentum of the rise that will impact equities.” Further buoying sentiment, the White House announced late on Wednesday that U.S. Secretary of State Antony Blinken will meet top Chinese officials on March 18 in Alaska in the first high-level in-person contact between the two sparring countries under the Biden administration. Following Asian counterparts into the black, the Turkish lira and the South African rand firmed 0.8% and 1% respectively, both extending gains to a third straight session. Russia’s rouble rose for a fifth session running aided also by rising oil prices. In Turkey, markets paid little heed to data showing the country’s current account deficit in January came in at $1.867 billion – more than a Reuters forecast. EM bond spreads reduced further, with the premium demanded by investors to hold EM dollar debt over U.S. treasuries having declined 7 basis points since hitting a three month high on Tuesday. 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 Susan Mathew in Bengaluru; Editing by William Maclean)