(Updates throughout)
By Jason Hovet
PRAGUE, Sept 29 (Reuters) - Heightened risk aversion knocked
back emerging European currencies on Monday as the financial
crisis spread, with Poland's zloty leading losses after the
country's euro ambitions ran into a potential setback.
The Polish zloty <EURPLN=> managed to trim some earlier
losses by 1407 GMT after the central bank put its support behind
euro adoption plans but still dropped 1 percent to 3.389 per
euro from Friday's close.
The Hungarian forint <EURHUF=> fell 1.2 percent to 242.8
against the euro, gaining back some losses after the central
bank left interest rates unchanged and took a cautious stance on
future moves.
Global nerves in the year-old credit crunch have hurt risk
appetite and flows of capital into emerging markets like
ex-communist central Europe.
"There has been a lot of bad news flow out of the banking
sector... which has affected risk appetite," said Martin Blum,
head of emerging markets economics and forex strategy at
UniCredit in Vienna. "It's not a good environment for central
European currencies and credit."
The financial crisis widened on Monday, with Belgian-Dutch
group Fortis being partly nationalised, while in the United
States, Citigroup bought the bulk of lender Wachovia's assets.
Markets were also watching events in the United States
closely, where lawmakers were set to vote on a $700 billion
rescue plan to clear up bad debt from jammed credit markets.
In other trade, the Czech crown <EURCZK=> shed 1.1 percent
to 24.613 per euro, while Romania's leu <EURRON=> dropped 0.7
percent to 3.707 per euro.
Investors have been bullish on the zloty since Poland set a
target early this month to finalise preparations for euro
adoption in 2011, with euro zone entry seen coming a year after.
Analysts have expected borrowing rates in the region's
largest economy would have to be tighter to bring inflation, now
nearly double the central bank's targeted rate, back in line.
On Monday, the central bank said it supported euro adoption
as soon as possible, adding it would adjust policy in support
[].
However, administrative questions have also arisen, and on
Monday Finance Minister Jacek Rostowski said a change in the
constitution was needed before the country could join the ERM-2
exchange rate proving ground [].
The government would need the support of the eurosceptic Law
and Justice Party (PiS) to change the constitution.
"This comment (from Rostowski) underlines the threats to the
government plan to adopt the euro by 2012," said Piotr Kalisz,
senior economist at Citibank Handlowy.
While Poland is seen hiking interest rates at least once
more in this cycle, on Monday Hungary's central bank followed
its counterparts this month by leaving borrowing costs untouched
for now, indicating it could stay like that for a while.
Surging price growth in the past year had forced most of the
banks to tighten interest rates sharply, although price pressure
looks to have eased in recent months.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2008
Czech crown <EURCZK=> 24.613 24.343 -1.11% +7.11%
Polish zloty <EURPLN=> 3.389 3.354 -1.04% +5.87%
Hungarian forint <EURHUF=> 242.790 239.850 -1.23% +3.98%
Croatian kuna <EURHRK=> 7.106 7.105 -0.01% +3.01%
Romanian leu <EURRON=> 3.707 3.682 -0.68% -3.54%
Serbian dinar <EURRSD=> 76.52 76.558 +0.05% +2.84%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +24 basis points to 29bps over bmk*
5-yr T-bond CZ5YT=RR +29 basis points to +30bps over bmk*
10-yr T-bond CZ9YT=RR +7 basis points to +32bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +37 basis points to +282bps over bmk*
5-yr T-bond PL5YT=RR +30 basis points to +232bps over bmk*
10-yr T-bond PL10YT=RR +21 basis points to +184bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +55 basis points to +603bps over bmk*
5-yr T-bond HU5YT=RR +36 basis points to +540bps over bmk*
10-yr T-bond HU10YT=RR +37 basis points to +409bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1607 CET.
Currency percent change calculated from the daily domestic
close at 1500 GMT.
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(Reporting by Reuters bureaus, writing by Jason Hovet; Editing
by Stephen Nisbet)
