LONDON, Nov 22 (Reuters) – Emerging assets rebounded on Tuesday off multi-month lows, although sovereign debt struggles on both sides of the Atlantic continue to constrain risk appetite.

India’s rupee sank to an all-time low, the casualty of growing investor concern over economies with large current account deficits, while Egyptian share trading was halted and its pound currency fell to seven-year lows as bloody protests against military rule entered their fourth day.

Meanwhile, Hungary completed a government debt auction at slightly lower premiums after confirmation from the IMF and the EU that Budapest is seeking precautionary financial aid.

After slipping for five successive sessions, the emerging equity benchmark firmed 0.5 percent off its weakest levels in nearly a month, while emerging sovereign debt spreads narrowed 6 basis points to 381 bps over U.S. Treasures.

Sentiment remains shaky as some doubt the ability of politicians in Europe and the U.S. to put aside their differences to tackle their huge debt burdens.

U.S. lawmakers have abandoned their high-profile effort to rein in country’s ballooning debt while Spanish borrowing costs hit their highest in 14 years amid investor frustration over the lack of detail on the austerity plans of the government-elect.

“Appetite for emerging markets is being limited by what’s happening in Europe and the U.S. The countries suffering the most are those with current account deficits because of the ongoing deleveraging from the European banking sector,” said Sebastian Barbe, head of emerging currencies and fixed income at Credit Agricole.

BUCHAREST/LONDON, Nov 17 (Reuters) – Hungary’s unorthodox policy drift makes it the most exposed of central Europe’s developing economies to the euro zone’s debt storm but the bigger worry for the region is a withdrawal of banking investment that could cripple growth and force some to seek IMF support.

Most of the European Union’s new eastern members are yet to adopt the single currency, but looming recession for its main trading partners is prompting nerves even in economies like Poland which rode out the 2008 financial crisis without contracting.

Banking ties are the elephant in the room. The impact is tougher to predict than trade, but could be more serious for a region still struggling to get back on its feet after its 2009 crash landing.

Since the collapse of Lehman Brothers in late 2008, Western banks have slashed their exposure to central Europe by a total of $100 billion, Bank of America-Merrill Lynch estimates.

That pullback could accelerate as Western lenders confront a 50-percent write-off on Greek debt holdings and face pressure to strengthen capital ratios, in turn straining local banking systems, forcing central banks to raise interest rates and potentially prompting problems with the financing of public debt due to the lack of funds for local investors to buy bonds.

Most vulnerable are those Balkan states where Greek banks have a substantial presence — Bulgaria, Macedonia, Serbia, Albania and Romania — though countries like Croatia with close links to Italy are starting to sweat too.

Banks having to ensure Tier 1 capital of 9 percent would imply an increase of capital of about 106 billion euros, according to Nomura analysts, of which 5-20 billion euros could come from emerging Europe.