* EU rejection of wider CEE bailout sinks FX
* Bond yields tick up on weaker currencies
* Financial sector worries hurt sentiment
* Morgan Stanley cuts forecasts on CEE banks
* Stocks lower, banks under pressure
(Adds details, fixed income, stocks)
By Jason Hovet
PRAGUE, March 2 (Reuters) - Emerging European currencies plunged on Monday, led by a drop of more than 2 percent in the Hungarian forint, after a weekend summit of European Union leaders rejected a mass bailout plan for the region.
Investors also cut riskier emerging market positions as financial sector worries were fuelled by a huge rights issue from HSBC <HSBA.L> and news the U.S. government is set throw a fresh lifeline to troubled insurer AIG. <AIG.N>.
The dismissal of a 180 billion euro Hungarian-proposed plan to support Eastern Europe dashed hopes of some market watchers who have said better off states would continue to be dragged down until the whole region was underpinned by a unified approach to the crisis.
EU leaders held out the prospect of faster euro zone entry for aspirants to the single currency, but analysts said that offered little solace to investors who fear the region's woes could also spill over to the West. [
]"The FX market's perception of the summit should be clear: The EU again has proven that it is unable to manage a coordinated response to the crisis," Commerzbank wrote in a morning note.
The forint <EURHUF=> sank to 306.1 per euro by 1017 GMT, down 2.2 percent from Friday's closing level but still off its all-time low of 310. The Polish zloty <EURPLN=> lost 1.5 percent to 4.745 per euro and the Czech crown <EURCZK=> shed 0.8 percent to bid at 28.34 per euro.
They have all slid to multi-year or record lows this year due to a worsening string of economic data and worries over some countries' heavy reliance on borrowing from abroad.
"The problems arising in Eastern Europe will put further pressure on the euro," the Commerzbank note said.
The weaker currencies put pressure on the government bonds, with yields continuing to tick up.
In Romania, the leu <EURRON=> outperformed on worries that the central bank may intervene, dealers said.
BLACK HOLE?
The market also left behind news from Friday that global development banks had launched a 24.5 billion euro loan programme to help speed up financing for businesses hit by a drop in demand from the recession-stricken euro zone but officials said the region needed more. [
]"On Friday the forint was pushed firmer on hopes that we will get money (from the EU)," a currency dealer said. "This (summit) news is negative."
Stocks weakened Monday, mirroring losses in Western Europe triggered by the financial sector fears, with Prague <
> losing 1.5 percent while Warsaw < > < > nudged lower. Banks came under pressure after Morgan Stanley cut several price targets, saying it remained cautious on the region. [ ]Policymakers have been at pains to dispel perceptions of central and eastern Europe being a single black hole, and analysts view countries like Poland and the Czech Republic as more resiliant to the crisis than peers such as the Baltics, Hungary and Romania.
But many analysts also say that investors will not differentiate until the region secures a broader aid package to underpin confidence. [
]Currencies have taken the frontline beating for the region's woes, with the zloty shedding 13 percent this year and a third of its value versus the euro since hitting record highs last summer. The forint has lost almost 14 percent in 2009, while the crown is off 5.6 percent and the leu 6.8 percent.
The plummeting currencies have destabilised financial systems and raised borrowing costs for the Hungarians, Romanians and Poles who went after foreign currency loans in recent years due to higher lending rates at home.
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today in 2009 Czech crown <EURCZK=> 28.34 28.101 -0.84% -5.6% Polish zloty <EURPLN=> 4.745 4.672 -1.54% -13.28% Hungarian forint <EURHUF=> 306.11 299.52 -2.15% -13.9% Croatian kuna <EURHRK=> 7.422 7.435 +0.18% -0.77% Romanian leu <EURRON=> 4.305 4.296 -0.21% -6.75% Serbian dinar <EURRSD=> 93.59 93.533 -0.06% -4.39% Yield Spreads Czech treasury bonds <0#CZBMK=> 2-yr T-bond CZ2YT=RR +31 basis points to 249bps over bmk* 4-yr T-bond CZ4YT=RR +3 basis points to +255bps over bmk* 8-yr T-bond CZ8YT=RR +9 basis points to +304bps over bmk* Polish treasury bonds <0#PLBMK=> 2-yr T-bond PL2YT=RR +20 basis points to +456bps over bmk* 5-yr T-bond PL5YT=RR +19 basis points to +382bps over bmk* 10-yr T-bond PL10YT=RR +16 basis points to +320bps over bmk* Hungarian treasury bonds <0#HUBMK=> 3-yr T-bond HU3YT=RR +28 basis points to +1171bps over bmk* 5-yr T-bond HU5YT=RR +30 basis points to +1035bps over bmk* 10-yr T-bond HU10YT=RR +29 basis points to +837bps over bmk* *Benchmark is German bond equivalent. All data taken from Reuters at 1120 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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