* Eur/dlr stop losses hit CEE currencies
* Stocks decline, led by Budapest as pension worries hit
* Cheuvreux recommends cutting Hungary exposure
* Forint losses raise chance of rate hike
(Updates prices, adds more analysis)
By Jason Hovet
PRAGUE, Nov 26 (Reuters) - Budapest stocks hit a five-month
low and the forint lost almost 1 percent on Friday as Hungarian
government plans to change the pension system unnerved investors
in a region already pressured by the euro zone debt crisis.
The Polish zloty hit a four-month low and the Czech crown
fell to its lowest since August, tracking the euro -- emerging
Europe's reference currency -- as worries grew that Spain and
Portugal could eventually be forced to seek a bailout.
Investor anxieties have been stoked further in Europe's
emerging markets by Hungary's centre-right Fidesz government,
whose policy moves since winning power in April have repeatedly
challenged economic orthodoxy. [] []
The centre-right government has given taxpayers until the
end of January to return to the state pension scheme or face
drastic cuts in future entitlements, a move that private funds
have denounced as "outright blackmail". []
The Hungarian 10-year bond yield jumped above 8 percent as
the curve rose as much as 40 basis points, the forint hit a
two-month low and the Budapest stock exchange <> lost 4
percent in its biggest daily fall since July.
"Today's moves are making people wake up to the fact that
bad and unsustainable policymaking is going on," Nomura
economist Peter Attard Montalto said.
Dealers said the forint should steady. A weaker forint
raised chances the central bank, meeting on Monday, may raise
interest rates instead of keeping them on hold as forecast.
"A runaway sell-off in the forint may simply tie the
Hungarian central bankers' hands in taking a defensive rate hike
measure," Danske Bank said.
Fidesz's first six months in power have also been marked by
attacks on the central bank and a fiscal oversight group, along
with new taxes on banks and business that have drawn criticism
from the European Union, business groups and analysts.
Cheuvreux recommend cutting exposure to Hungary.
"Given the complete unpredictability of the government's
decision-making process, we have decided to recommend moving out
of Hungarian assets, with the additional risk of ratings
downgrades bearing negatively ahead in our view," it said in a
regular morning note.
EURO ZONE DEBT ADDS TO LOSSES
Hungarian losses were worsened by a drop in the euro against
the dollar to a two-month low, which triggered stop losses and
knocked out some key technical levels.
The zloty broke its 200-day moving average around 3.98 per
euro and fell past the 4.0 level for the first time this month
before being capped at 4.05 level.
By 1530 GMT, the zloty <EURPLN=> was bid down 0.9 percent at
4.016 to the euro. The forint <EURHUF=> hovered at 280 per euro.
Chances of fast zloty appreciation were behind the central
bank's decision to delay longer the start of tightening cycle
this month. []
Poland will unveil next week changes to its costly private
pension funds. Although it was the only country in the EU to
avoid recession during the crisis, its budget deficit has
swollen to an estimated 7.9 percent of economic output this
year.
It is also closing in on public debt levels that could
trigger painful spending cuts -- an unwanted scenario heading
into parliamentary elections next autumn.
Polish authorities are using state-owned BGK bank to sell
euros to keep the zloty strong till the year-end to avoid debt
levels, dealers and economists say. [] Some
government officials have already said the zloty around 4.0 to
the euro is 'safe'.
"There were many stop losses after breaching 4.0250 to the
euro, but the market is overheated now and I think we should
come back to around 4.0 against the euro," a Warsaw currency
dealer said.
The crown <EURCZK=> was flat at 24.725, well off a morning
low of 24.825. The Romanian leu <EURRON=> was on the weak side
of 4.30 per euro at a one-month low, down 0.3 percent.
Concerns are growing that other highly indebted euro
periphery states such as Portugal or even Spain may need
bailouts after Greece and then Ireland sought emergency funds.
In central Europe, public debt levels are still at or below
the EU average. But Hungary and Romania have needed external aid
to get through the financial crisis.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.725 24.718 -0.03% +6.44%
Polish zloty <EURPLN=> 4.016 3.98 -0.9% +2.19%
Hungarian forint <EURHUF=> 279.45 277.27 -0.78% -3.26%
Croatian kuna <EURHRK=> 7.432 7.421 -0.15% -1.65%
Romanian leu <EURRON=> 4.313 4.299 -0.32% -1.75%
Serbian dinar <EURRSD=> 107.00 107.03 +0.03% -10.39%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +4 basis points to 77bps over bmk*
7-yr T-bond CZ7YT=RR -9 basis points to +74bps over bmk*
10-yr T-bond CZ9YT=RR -4 basis points to +93bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +4 basis points to +377bps over bmk*
5-yr T-bond PL5YT=RR +9 basis points to +372bps over bmk*
10-yr T-bond PL10YT=RR +8 basis points to +341bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +36 basis points to +657bps over bmk*
5-yr T-bond HU5YT=RR +21 basis points to +613bps over bmk*
10-yr T-bond HU10YT=RR +19 basis points to +533bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1631 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
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(Reporting by Reuters bureaus, writing by Jason Hovet;
Editing by Toby Chopra/Ruth Pitchford)
