* Markets consolidate after early plunge on euro weakness
* Romania CDS spreads widen by 14 bps to 255
* Leu pressured as thousands protest against pay cuts
* Dealers suspect another c.bank intervention to protect leu
By Marius Zaharia and Sandor Peto
BUCHAREST/BUDAPEST, May 19 (Reuters) - Central European
assets remained weak but calmer on Wednesday afternoon following
an early plunge after Germany's move to clamp down on naked
short selling hurt the euro.
A rebound in the euro <EUR=>, from four-year lows against
the dollar in the morning, helped calm emerging European markets
but sentiment across the region remained fragile.
In Romania, mass protests which will test the government's
ability to enforce key pay cuts, put additional pressure on
markets.
Central European assets have been hit by the euro's weakness
amid concerns that austerity measures in the euro zone could
hurt economic growth and dampen demand for exports from emerging
Europe, the bulk of which go to the euro zone.
The euro suffered another blow on Wednesday after Germany
announced a ban on naked short selling of some securities,
raising the possibilty that speculators would increasingly focus
their attention on the foreign exchange market to bet against
European assets.
Central European currencies hit 12-day lows against the
euro. The region's usual proxy, the Polish zloty <EURPLN=> led
losses, sliding 1.5 percent against the euro by 1409 GMT.
A dealer said some cross trades with the zloty may have
helped the Hungarian forint <EURHUF=>, which was down 0.6
percent versus the euro after rebounding to around the key 280
line from strong support levels around 281.50.
Hungarian bonds also rebounded from early lows, but yields
were still higher by 10-15 basis points from Tuesday.
"The euro/dollar cross remains in focus. The battle is going
on around the 280 (forint/euro) level and turnover is fairly
strong," one Budapest-based currency dealer said.
The Czech crown <EURCZK=> fell 0.9 percent. The Romanian leu
<EURRON=> lagged with a 0.1 percent fall, with dealers
suspecting another round of central bank covert interventions.
Dealers in Warsaw said the zloty could test 4.2 per euro in
coming sessions if euro selling pressure mounts.
Stocks also fell. Hungary's <> equity index shed 3
percent by 1419 GMT, Warsaw's <> fell 2.7 percent and
Prague's <> was down 2.1 percent.
Elsewhere in the region, Serbia's central bank left its key
policy rate unchanged at 8 percent. []
SOCIAL UNREST
In Romania, tens of thousands of people gathered in front of
the government's headquarters in Bucharest to protest against
drastic pay cuts, which are key to keeping a 20 billion euro
deal with the International Monetary Fund on track.
[]
The deal is crucial to maintain the state's ability to
finance its ballooning budget deficit. The issue was highlighted
by two failed debt auctions earlier this month as investors
feared the government may bow to mounting social pressure.
BNP Paribas said social unrest would reflect mainly in
rising costs to insure sovereign debt against default. CDS
spreads for Romania widened 14 basis points to 615.
Market fears of possible central bank intervention have
contained the leu's losses. The bank's policy is not to comment
when dealers suspect interventions, but it has repeatedly said
it does not favour volatility.
Investor appetite for the region's assets will be tested by
bond auctions in Romania and Hungary on Thursday.
Romania's 10-year tender is expected to fail <BNR032>.
Hungary, where domestic demand usually covers new debt issues,
is likely to sell the bonds offered <HUISSUE>, traders said.
"Perhaps at the current bid levels, but I think the auctions
will be bought," one trader said.
Poland sold 3 billion zlotys worth of government-backed road
bonds on Wednesday amid strong demand despite the turmoil in
European markets. []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.71 25.475 -0.91% +2.36%
Polish zloty <EURPLN=> 4.085 4.023 -1.52% +0.47%
Hungarian forint <EURHUF=> 279.7 277.92 -0.64% -3.34%
Croatian kuna <EURHRK=> 7.262 7.253 -0.12% +0.65%
Romanian leu <EURRON=> 4.196 4.193 -0.07% +0.99%
Serbian dinar <EURRSD=> 101.486 101.476 -0.01% -5.52%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -3 basis points to 113bps over bmk*
7-yr T-bond CZ7YT=RR -9 basis points to +111bps over bmk*
10-yr T-bond CZ9YT=RR -7 basis points to +101bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +4 basis points to +400bps over bmk*
5-yr T-bond PL5YT=RR +3 basis points to +358bps over bmk*
10-yr T-bond PL10YT=RR -2 basis points to +288bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +8 basis points to +555bps over bmk*
5-yr T-bond HU5YT=RR +16 basis points to +514bps over bmk*
10-yr T-bond HU10YT=RR +5 basis points to +431bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1609 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Marius Zaharia/Sandor
Peto; Editing by Toby Chopra and Susan Fenton)
