EMERGING MARKETS-Stocks, FX let up at end of brutal week; Turkey's lira climbs 1%

* China joins FTSE Russell's main bonds index

* Russia, Vietnam on FTSE Russell review for upgrade

* MSCI EM stocks, FX indexes set for worst week since March

By Medha Singh

Sept 25 (Reuters) - Turkey's lira firmed about 1% for the second day on Friday while a broader emerging market currencies index looked set to snap a four-day losing streak as the dollar retreated.

Turkey on Friday increased transaction limits on derivatives, including foreign exchange swaps, that its local banks can execute with foreign investors, helping the lira stabilize further from a record low against the dollar.

The currency on Thursday appeared to have found a floor after a series of historic drops, following the central bank's unexpected move to hike interest rates after two years of aggressive easing.

However, the lira is still down about 27% against the greenback this year amid worries about negative real rates and the central bank's depleted forex reserves.

"Investors are mainly interested in whether or not (the interest rate hike) can break the depreciation momentum which the lira had picked up over the past month," said Tatha Ghose, an analyst at Commerzbank.

"The market would have to be convinced that CBT can launch a sustained hiking cycle, if necessary."

Hopes of fresh U.S. stimulus lifted MSCI's indexes for developing world stocks and currencies at the end of what would likely be their worst weeks since March.

Emerging market bond funds enjoyed their twelfth week of inflows, adding $1.2 billion, Bank of America said on Friday, while U.S. equity funds suffered their third-largest weekly outflows ever.

The yuan gained as investors cheered China's inclusion in FTSE Russell's global bond index that could potentially open up billions of dollars of inflows into the world's second-largest economy.

Russia's stocks were on the watchlist for possible reclassification to "secondary emerging", the index publisher said.

The rouble eased off a five-month low versus the dollar as the energy exporter benefitted from an uptick in crude prices. South Africa's rand climbed 0.5%, nearing a six-month high.

Central European currencies such as the Hungarian forint , Romanian leu and the Polish zloty moved in a flat-to-high range against the euro.

For GRAPHIC on emerging market FX performance in 2020, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2020, see https://tmsnrt.rs/2OusNdX

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For RUSSIAN market report, see (Reporting by Medha Singh in Bengaluru; Editing by Ramakrishnan M.)