* FX ends two-day rally
* Stocks fall, led by banks
* Effects of Warsaw's EU funds fade, PM says zloty stable
* Currencies off intra-day lows after World Bank report
(Updates throughout)
By Jason Hovet and Marius Zaharia
PRAGUE/BUCHAREST, Feb 20 (Reuters) - Central European
currencies saw renewed declines on Friday, and the Polish zloty
steadied at weaker levels as the bearish mood towards the region
and its banks continued to hit markets.
Markets got a boost mid-morning from a World Bank report
holding out the chance that some emerging European Union (EU)
members will avoid recession.[]
But investors' aversion to risk due to more signs of a
slumping global economy kept the region's markets under pressure
before a weekend G20 meeting.
EU Economic Affairs Commissioner Joaquin Almunia said on
Friday the EU is helping eastern European economies hit by the
global downturn. []
He called on private investors to support their investment
there, speaking in response to questions about a possible rescue
package for eastern European countries.
Concerns over external financing and banks' health have
pounded the region this week, sparked by ratings warnings from
agencies. On Friday, a Moody's analyst said Austria's triple-A
debt rating is not under pressure from its banks' exposure to
emerging Europe. []
The hard-hit Polish zloty stabilised after a two-day rally
that was helped by the conversion of EU funds on the market
after falls of more than 5 percent at the start of week.
The Polish prime minister said on Friday the zloty has
stabilised for now and its worst losses are likely over. It
neared an all-time low at around 4.93 per euro on Tuesday.
[] By 1338 GMT, it was bid at 4.731 to the euro,
even with Thursday's domestic close.
"We have been relatively stable, and there is no real
momentum now," said emerging markets strategist Mats Olausson at
SEB bank. "The next big move could be in a weaker direction."
Poland has also been hurt by losses for companies who bet on
the zloty when it was at record highs in the summer. The zloty
has lost almost 30 percent since Sept. 1 -- most in the region.
UNDER PRESSURE
Markets opened lower after poor U.S data on Thursday led to
losses in Asia overnight.
But currencies moved off intra-day lows, helped by the World
Bank report that saw the possibility of growth in the Czech
Republic, Poland, Bulgaria, Romania, Slovakia and Slovenia --
but warned uncertainty clouded the forecasts.
The Czech crown <EURCZK=> was steady at 28.779, while
Hungary's forint <EURHUF=> slid 0.8 percent and the Romanian leu
<EURRON=> lost 0.3 percent. The World Bank expects a recession
in Hungary this year.
Officials in Poland, Czech Republic and Hungary have moved
to talk up currencies after the strong pace of falls, and many
strategists have said the falls were overshot. [].
"The region's currencies may have already reached
undervalued territories and after the first positive (economic)
growth figures they can stabilize or move towards (firmer)
equilibrium exchange rates," said Barbara Nestor, emerging
markets strategist at Commerzbank in London.
"But in the short term, uncertainty over the banking sector,
possible local or parent bank downgrades can be in the focus,
and central bank policy on the other hand."
The region has been hammered by recession fears, forcing
central banks into an easing monetary cycle. But a crisis of
confidence in eastern Europe looks likely to make the region's
central banks halt or reverse cuts in interest rates.
Poland's biggest bank Pekao <BAPE.WA> reported on Friday it
made higher-than-expected provisions for bad debts in the fourth
quarter, sending its shares lower.
Central Europe's stock markets fell 3-6 percent on Friday,
sliding with western peers as banking stocks stayed in focus,
and bond yields inched higher.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 28.779 28.83 +0.18% -7.04%
Polish zloty <EURPLN=> 4.731 4.732 +0.02% -13.02%
Hungarian forint <EURHUF=> 304.38 301.89 -0.82% -13.41%
Croatian kuna <EURHRK=> 7.47 7.47 0% -1.41%
Romanian leu <EURRON=> 4.278 4.265 -0.3% -6.16%
Serbian dinar <EURRSD=> 93.95 94.737 +0.84% -4.76%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +16 basis points to 206bps over bmk*
4-yr T-bond CZ4YT=RR +1 basis points to +232bps over bmk*
8-yr T-bond CZ8YT=RR -9 basis points to +305bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +17 basis points to +455bps over bmk*
5-yr T-bond PL5YT=RR +20 basis points to +387bps over bmk*
10-yr T-bond PL10YT=RR +22 basis points to +324bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +13 basis points to +1183bps over bmk*
5-yr T-bond HU5YT=RR +22 basis points to +1048bps over bmk*
10-yr T-bond HU10YT=RR +17 basis points to +894bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1439 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
For related news and prices, click on the codes in brackets: All
emerging market news []
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(Reporting by Reuters bureaus, writing by Jason Hovet and
Marius Zaharia, editing by Victoria Main)
