July 10 (Reuters) - Morgan Stanley removed its bullish bet on local currency emerging market bonds due partly to their "unusual but not unprecedented" outperformance, the investment bank said on Monday.

It also removed its short on the Chinese yuan and "turned tactically bullish."

EM local bonds "significantly outperformed" U.S. Treasuries during the first half of this year, Morgan Stanley said, making yield differentials "very tight." "Inflation trends between EM and (the United States) are not significantly different, which makes the outperformance harder to justify," said in a note James Lord, global head of FX and EM strategy at Morgan Stanley.

"A rally in EM local from here is increasingly dependent on lower U.S. rates," he added.

On the sentiment change towards the yuan, Lord said positioning is very negative against the currency while China's central bank has started to push back against the yuan's weakness.

"Our economics team expects to see stimulus ramp up through July," he added.

China should shift the focus of its stimulus from investment to consumption and further loosen urban residency curbs to boost migrant workers' spending power, a central bank policy adviser said over the weekend.

(Reporting by Rodrigo Campos; Editing by Stephen Coates)