(Updates throughout)
By Jason Hovet and Dagmara Leszkowicz
PRAGUE/WARSAW, Feb 18 (Reuters) - The zloty rebounded on
Wednesday after a ruling party official said Poland had started
ERM-2 talks and the Finance Ministry sold some EU funds on
markets, but central Europe remained under pressure.
Policymakers scrambled to protect tumbling currencies after
the zloty, Czech crown and Hungarian forint fell to multi-year
or record lows this week, hurt by poor economic outlooks and
fears about the region's foreign debt reliance.
Officials are being forced to look at methods other than
direct intervention to stop the falls which have hit companies,
banks and citizens that borrowed in foreign currencies.
The Polish Finance Ministry said it converted some euros
from EU funds on the currency market via a local bank, boosting
the zloty's value one day after the government said it could
sell EU funds if the zloty fell to 5.0 per euro. []
On Wednesday, a Polish ruling party official was quoted as
saying Poland started talks a few days ago with the European
Central Bank on joining the pre-euro Exchange Rate Mechanism
(ERM-2). []
His remarks boosted the zloty <EURPLN=>, which reversed
losses to rise to 4.764 per euro, up 2.4 percent from Tuesday's
domestic close. Polish bonds also jumped with the currency.
The zloty has lost about a third of its value against the
euro since the unit hit record highs last summer, and analysts
and the Polish central bank have cast doubt on Poland's 2012
euro adoption target in recent weeks due to currency volatility.
"The ministry showed it was able to carry out exchange
operations on the market, but I think today's information on
ERM-2 talks were crucial," said Mateusz Szczurek, chief
economist at ING bank in Warsaw. "Those factors showed there's a
risk for those who are playing to depreciate the zloty."
CURRENCIES
Elsewhere, the crown <EURCZK=> rose 2.4 percent to 28.81 to
the euro due to stop losses, while the forint <EURHUF=> gained
0.7 percent to 303.4 to the euro by 1541 GMT.
Hungarian Prime Minister Ferenc Gyurcsany said on Wednesday
he had asked the central bank and finance ministry to explore
unconventional means of defending the currency. []
Czech central bank Vice-Governor Miroslav Singer said the
bank could end a 200-basis-point easing cycle and raise interest
rates following a 6 percent drop in the crown since its last
policy meeting two weeks ago. []
Falling interest rates to boost weak economies have added to
the decline in currencies, while Polish companies have suffered
losses from currency option deals which went sour after the
zloty reversed from record highs in August. []
"Policymakers are starting to get worried," Calyon currency
strategist Stuart Bennett said. "The problem at the moment,
though, is what is driving this (fall) is something they cannot
control, i.e. risk. Markets have got very worried over the
direction central and eastern Europe is going."
In Romania the central bank governor said the country may
want to seek financing help from the International Monetary Fund
to protect its currency reserves. []
The country's leu <EURRON=> was up, gaining around 0.6
percent to the euro at 4.276.
The European Union voiced concern over the fall of
currencies in the bloc's eastern members, urging authorities to
avoid statements exacerbating the problem. []
The zloty has plunged 29.8 percent since Sept. 1, and the
forint is down 21.3 percent. In the same period, the crown is
down 13.8 percent and Romania's leu is off 17.7 percent.
Two rating agencies said on Tuesday the ratings of emerging
European banks and their western owners could suffer in the
recession, sparking a selloff led by banks. []
Stocks on Wednesday continued a heavy slide, with Prague
<> down 3 percent and Budapest <> 7 percent.
[]
Warsaw <> rebounded to trade flat.
Czech bonds weakened on Wednesday. A Czech 8-year floating
rate bond auction saw depressed demand compared to previous
sales. []
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 28.81 29.508 +2.42% -7.14%
Polish zloty <EURPLN=> 4.764 4.88 +2.43% -13.62%
Hungarian forint <EURHUF=> 303.43 305.51 +0.69% -13.14%
Croatian kuna <EURHRK=> 7.427 7.47 +0.58% -0.83%
Romanian leu <EURRON=> 4.276 4.301 +0.58% -6.12%
Serbian dinar <EURRSD=> 94.448 93.829 -0.66% -5.26%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +1 basis points to 195bps over bmk*
4-yr T-bond CZ4YT=RR +16 basis points to +220bps over bmk*
8-yr T-bond CZ8YT=RR -2 basis points to +293bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -10 basis points to +468bps over bmk*
5-yr T-bond PL5YT=RR -4 basis points to +395bps over bmk*
10-yr T-bond PL10YT=RR -4 basis points to +323bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -27 basis points to +974bps over bmk*
5-yr T-bond HU5YT=RR -62 basis points to +868bps over bmk*
10-yr T-bond HU10YT=RR -50 basis points to +706bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1646 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Jason Hovet and
Dagmara Leszkowicz; Editing by Jason Neely)
