EMERGING MARKETS-Asian shares, FX slump as China demand concerns weigh

(.) * China's May factory activity falls faster than expected * Thai central bank hikes key interest rate by 25 bps * Investors await progress on U.S. debt ceiling deal By Riya Sharma May 31 (Reuters) - Most Asian currencies and equities fell on Wednesday, with Hong Kong stocks just shy of bear market territory, as weak factory activity data from China heightened concerns about its stuttering economic recovery and the impact on the rest of Asia. The yuan shed 0.4% against the U.S. dollar, easing to a six-month low and leading laggards among Asian currencies, while Hong Kong's Hang Seng index, which is down 8% in May, fell more than 2% on Wednesday, setting the stage for it to be in bear market territory soon. Meanwhile, the Turkish lira traded near a record low after President Tayyip Erdogan won an election runoff to extend his rule into a third decade. China's manufacturing activity contracted faster than expected in May on weakening demand, data showed on Wednesday, with the official manufacturing purchasing managers' index down at 48.8 against a forecast of 49.4. "China's manufacturing data posed another downside surprise...and a lower-for-longer growth picture seems to be reflected here, adding to the series of economic downside surprises witnessed over the past month," said Jun Rong Yeap, market analyst at Singapore's IG Bank. The data heaps pressure on policymakers to shore up a patchy economic recovery with the need for more policy support to reassure market participants, Yeap said. The disappointment filtered through to other China-sensitive assets, such as the Australian dollar. Aussie stocks hit their lowest in two months. The dollar index traded close to a 10-week high after U.S. President and Republican House Speaker signed off on a deal to temporarily suspend the U.S. debt ceiling and cap federal spending in order to prevent a default. Meanwhile, Thailand's central bank raised its key interest rate by 25 basis points (bps) for a sixth consecutive meeting on Wednesday. The Bank of Thailand (BOT) has hiked its key rate by a total of 150 bps since August. The baht was down 0.3%, while Thai stocks were 0.6% lower. "The market had already priced in the rate hike by the Bank of Thailand, that's why we aren't seeing much impact on the currency and stock moves from the policy decision," said Poon Panichpibool, a market strategist with Krung Thai Bank. The Philippine peso rose 0.2% after the country's central bank said annual inflation in May is expected to come in between 5.8% to 6.6%, with downward pressure coming from lower prices of petroleum, poultry and electricity rates. Equities in the region were all in the red, with shares in Jakarta down 0.9% and leading losses among Southeast Asian peers. HIGHLIGHTS: ** South Korea's factory production and retail sales dropped in April ** Thailand's manufacturing production index (MPI) in April contracted by a more-than-expected 8.14% from a year earlier Asia stock indexes and currencies at 0749 GMT COUNTR FX RIC FX FX IND STOCK STOCK Y DAILY YTD EX S S YTD % % DAILY % % Japan +0.04 -6.1 <.N -1.41 20.11 7 225 > China 6 SEC > India 6 SEI > Indone -0.07 +3.8 <.J -0.83 -3.93 sia 4 KSE > Malays -0.52 -4.8 <.K -0.81 -7.34 ia 0 LSE > Philip +0.23 -0.8 <.P -0.51 -1.36 pines 9 SI> S.Kore 2 S11 > Singap -0.37 -1.1 <.S -0.80 -2.74 ore 3 TI> Taiwan 9 WII > Thaila 9 ETI > (Reporting by Riya Sharma in Bengaluru; Editing by Sonia Cheema)