By Ankika Biswas

Sept 18 (Reuters) -Emerging market stocks edged lower and currencies lacked momentum on Wednesday, as some caution crept in over the size of an expected U.S. interest-rate cut in the Federal Reserve's monetary policy announcement later in the day.

A 50-basis-point rate cut, as expected by investors, will be key in further driving global risk appetite. However, economists favouring a 25-bps cut argue that the current state of the U.S. economy doesn't warrant a bigger move.

Market expectations on the size of a U.S. rate cut have been volatile of late, with only a 14% chance of a 50-bps cut priced in as of exactly a week ago, according to CME's FedWatch Tool.

The Fed will detail its September rate verdict at 1800 GMT (2 p.m. ET), a day after an unexpectedly robust retail sales data was taken as weakening the case for aggressive Fed easing.

"Either way, Fed Chair Powell will face a communications challenge, as a 25-bps cut would raise questions about the Fed falling behind the curve, whereas a 50-bps cut would mean Powell needs to avoid sending negative signals about the economy," Jim Reid, global head of macro research at Deutsche Bank noted.

The MSCI index for EM stocks slipped 0.3%, on track to snap a four-day gaining streak, while the currencies gauge .MIEM00000CUS was trading around the flat line.

China stocks .CSI300, .SSEC closed higher after investors returned from the Mid-Autumn Festival holiday, with gains in property and financial shares offsetting losses in consumer-related stocks.

Hong Kong and South Korean markets were closed for holidays.

Pakistan's benchmark stock index .KSE rose nearly 1% after a public holiday on Tuesday, to touch its highest level since mid-July.

Sri Lanka's main stock index .CSE also gained 1% to a near two-week high, while the country's currency LKR= weakened 0.6% against the dollar to an around two-month low.

On the data front, South Africa's headline consumer inflation fell more than expected to 4.4% in August. With inflation at the midpoint of the central bank's target range, analysts predict the country will cut its interest rate for the first time in over four years on Thursday.

The rand ZAR=D3 firmed 0.2% against the dollar.

Meanwhile, the International Monetary Fund said it held productive discussions with the Kenyan government on its plans to address the country's economic and fiscal challenges. The shilling KES=, however, slipped against the dollar.

Elsewhere, India overtook China for the first time in a key MSCI equities index, bolstered by steady economic growth and strong flows. India's weight in the MSCI investible large-, mid- and small-cap index rose to 2.35%, greater than China's weight of 2.24%, Morgan Stanley said.

Reporting by Ankika Biswas in Bengaluru
Editing by Keith Weir

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