(Bloomberg) -- Emerging-market stocks rose for a second session amid signs of easing tensions in the Middle East and after softer US economic data fueled hopes the Federal Reserve might take a less hawkish stance.

An MSCI Inc. gauge of developing-nation equities finished 0.7% higher Tuesday, extending gains after US PMI readings came in below expectations. Currencies also advanced, with the Mexican peso, the Brazilian real and the Hungarian forint registering the biggest appreciations in a basket of peers. 

That marks a rebound from last week, when stocks erased their gains for the year, oil prices jumped and traders pushed back Fed rate cut expectations. Now, steadying US Treasuries and easing tensions between Iran and Israel following a tit-for-tat exchange of attacks are signaling calm is returning to the market. 

“Markets got quite oversold last week driven down by the rally in US rates and noise in the Middle East,” said Kamil Dimmich, a partner at London-based North of South Capital. With tensions easing and bond markets stabilized, “there’s clearly some buying after the selloff, but we’re still along way off the highs.” 

UBS Group AG raised its recommendation on a key Chinese stock index to overweight amid a pickup in consumer spending, with the rare upgrade call underscoring the tentative optimism that the market is finally on the mend. In another sign of support for Chinese stocks, Mercer LLP, a New York-based investment consultant, said they’re long-term bullish on China. 

The Hang Seng index gained 1.9% on Tuesday, its biggest gain in three weeks. Latin American equities also climbed, posting their biggest winning streak since February. 

“There are strong country-specific stories happening in EM,” said Malcolm Dorson, head of emerging market strategy at Global X. “China is back into expansionary territory with GDP upgrade momentum, while Taiwan and Korea are prime to benefit from semiconductor demand.”

In debt markets, Abu Dhabi sold its first eurobonds in about three years, while the Peruvian development bank is also in the market with a $300 million deal for five-year notes. 

Dominican Republic’s dollar notes were among the best-performing sovereign credits on Tuesday, with the 2060 notes up 1.1 cents on the dollar. The nation is expected to hold general elections next month. 

--With assistance from Zijia Song and Carolina Wilson.

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