Updated at 0955 GMT

By Johann M Cherian

July 25 (Reuters) -Stocks in most developing markets dropped to more than a one-month low on Thursday, as risk taking took a dive after a surprise interest rate decision out of China, while Ukraine bond yields ticked up following a credit rating downgrade.

MSCI's index tracking equities across emerging markets .MSCIEF dropped 0.6% on track for its ninth day of declines out of ten, but still hanging onto gains of over 4% year-to-date.

A currencies gauge .MIEM00000CUS edged up 0.2% against a softer dollar, with markets awaiting economic growth data out of the U.S. later in the day.

The People's bank of China (PBOC) surprised markets for a second time this week with an unscheduled lending operation at steeply lower rates, in a heavier effort to prop the economy, which spooked investors and sent China stocks .SSEC, .CSI300 lower by 0.5% each.

China's offshore yuan CHN=D3, however, firmed to levels seen last in early May, while bond yields across the curve were flat.

"The PBOC is trying to shore-up sluggish Chinese economic activity. However, until China deals with its huge debt overhang (total debt is more than 300% of GDP), the country looks set for weaker growth in the years ahead," said Elias Haddad, senior markets strategist at Brown Brothers Harriman.

Indian equities .NSEI, .BSESN continued their decline for the fifth straight day, with the indexes on track for their first weekly losses since late May after equity trading tax hikes earlier in the week.

The capital gains tax revisions sparked a selloff with data showing foreign investors offloaded nearly $1 billion worth of equities in the two days since the budget announcement.

South Africa's rand ZAR= depreciated 0.8%, tracking a weakness in precious metal prices, a top export item from the country. GOL/

In central and eastern Europe, Hungary's forint EURHUF= weakened for the third-straight day by 0.1% to a two-week low on expectations of more monetary policy easing after an interest rate cut earlier in the week. Concerns also remain as the country struggles with the largest debt in the region.

An index tracking stocks in central and eastern Europe .MIME00000PUS also slid 1.5% to a more than one month low.

Investors monitored ceasefire negotiations between Israel and Hamas, which U.S. officials said were appearing to be in their closing stages. The shekel ILS= was flat.

Elsewhere, Ukraine's central bank was due to announce an interest rate decision.

Yields on dollar bonds XS1577952952=TE ticked up 28 basis points (bps) as ratings agency Fitch downgraded the war-torn country's credit rating further into default territory, citing a recently concluded in-principle agreement with a group of creditors to restructure $20 billion of international bonds.

Reporting by Johann M Cherian in Bengaluru; editing by Philippa Fletcher

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