(Updated at 0900 GMT)

* Moody's says India's water crisis can dent credit strength

* U.S. probes some China firms on internet, cloud risks, report says

* Sri Lanka likely to sign agreement with creditors on Wednesday

* EM stocks and currencies broadly flat

June 25 (Reuters) - Currencies and stocks in emerging markets were tepid on Tuesday ahead of key U.S. inflation data later in the week, while investor focus remained on local politics in South African and Indian equities notched a record high.

MSCI's main gauge tracking stocks in emerging markets edged 0.1% higher, while an index tracking currencies was flat against the dollar.

Crucial U.S. inflation data on Friday could impact the trajectory of the Federal Reserve's monetary policy and influence easing cycles in emerging and frontier markets.

South Africa's rand gave up early gains and slipped 0.2%, while the benchmark stock index shed 0.3% as investors were on edge after reports of negotiations over cabinet positions between the two biggest parties in the unity government.

The 30-year benchmark Treasury bond yield dropped eight basis points (bps) to 9.775%.

Traders are also monitoring how many ministerial posts would be assigned to the market-friendly Democratic Alliance party in one of Africa's biggest economies.

"Politically, it should be noted that coalitions are something new for South Africa and the African National Congress. Tensions within the government will, therefore, arise time and again – a break-up (in the coalition government) is a possibility at any time," said Volkmar Baur, FX strategist at Commerzbank.

Meanwhile, China's blue-chip index slipped 0.5% and Hong Kong's Hang Seng index closed up 0.2%.

The Biden administration is investigating China Mobile , China Telecom and China Unicom over concerns the firms could exploit access to American data through their U.S. cloud and internet businesses by providing it to Beijing, as per sources. However, shares of the firms settled higher between 0.6% and 1.9%.

In south Asia, India's BSE Sensex index rose 0.8% to hit an all-time high, lifted by heavy-weight financials.

Moody's Ratings, which has a Baa3 credit rating on the country, warned that worsening domestic water shortages can negatively impact its sovereign credit strength.

Indian bonds will be included in JPMorgan's widely-tracked emerging market debt index on June 28.

Sri Lanka's main stock exchange was flat. Foreign Minister Ali Sabry said that the country expects to sign a debt restructuring agreement with a group of creditor nations on Wednesday, allowing them to recommence lending to the island nation that slid into crisis in 2022.

Czech's koruna outperformed central and eastern European peers, climbing 0.2% against the euro, though it is likely to see some pressure as economists expect the local central bank to trim borrowing costs later in the week.

(Reporting by Johann M Cherian and Shashwat Chauhan in Bengaluru; Editing by Sonia Cheema)