PRAGUE, Sept 16 (Reuters) - Poland's zloty and the Hungarian
forint led emerging European currencies lower against the euro
on Tuesday as markets worried that U.S. insurer AIG would be the
next victim of a financial sector meltdown.
The zloty <EURPLN=> dropped 1.5 percent from Monday's
domestic close to trade at 3.394 by 0841 GMT, while the forint
<EURHUF=> dropped to 243.2 to the euro from 240.7. Both
currencies tend to fall when global risk appetite wanes.
"It's been a volatile market," said a Warsaw trader. "It's
still a nervous market because of the (news) in the United
States ... It's moving in a wide range without any real
direction."
Dealers said regional trade could remain volatile as long as
the global environment is shaky and uncertain.
On Monday, Lehman Brothers filed for bankruptcy protection
in what is set to be the most high profile case of its type
since 1990, while Bank of America announced it would buy
brokerage Merrill Lynch, adding to turmoil on markets.
On Tuesday, American International Group, thrown a $20
billion lifeline after searching for more funding, moved to the
fore as rating agencies downgraded the insurer's debt.
"Nothing is impossible any more," a Budapest dealer said.
"We've seen so much turbulence on international markets and
there's no end in sight."
Risk aversion has surged and stock markets in the region
have fallen to their lowest levels in more than two years,
battered by the growing concerns over the financial sector and
the implications for the global economy.
In fixed income, Hungarian bond prices extended Monday's
falls in early trade on Tuesday, with yields rising by up to 25
basis points across all maturities.
In Poland, yields edged up, also hit by a central banker
saying Poland's euro ambitions raise the chances for more than
one more interest rate hike in current tightening cycle.
"Bonds are suffering due to risk aversion prompted by what
is happening on the financial markets," said a trader in an
foreign bank in Warsaw. "What happened to Lehman has soured the
mood. The comments made by (Halina) Wasilewska-Trenkner only
make the situation worse."
In other trade, Romania's leu <EURRON=> tracked the region
with a drop of 1.1 percent to 3.656 per euro.
But the Czech crown <EURCZK=> bucked the trend,
strengthening 0.1 percent to 24.1 per euro helped by a weakening
dollar and investors selling long euro/Czech crown positions.
"People are squaring positions," said a Prague trader. "The
crown is living its own story right now. But the upward
(weakening) trend is still in place."
Regional currencies have fallen 4 to 6 percent since July
highs, squeezed by scaled back interest rate hike expectations
as concerns shift to economic weakness and away from inflation
risks.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2008
Czech crown <EURCZK=> 24.100 24.131 +0.13% +9.05%
Polish zloty <EURPLN=> 3.394 3.344 -1.5% +5.74%
Hungarian forint <EURHUF=> 243.180 240.700 -1.03% +3.82%
Croatian kuna <EURHRK=> 7.107 7.107 0% +3.00%
Romanian leu <EURRON=> 3.656 3.616 -1.11% -2.12%
Serbian dinar <EURRSD=> 76.220 76.168 -0.07% +3.22%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +7 basis points to 23bps over bmk*
5-yr T-bond CZ5YT=RR +7 basis points to +21bps over bmk*
10-yr T-bond CZ9YT=RR +7 basis points to +33bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +9 basis points to +264bps over bmk*
5-yr T-bond PL5YT=RR +12 basis points to +231bps over bmk*
10-yr T-bond PL10YT=RR +11 basis points to +192bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +32 basis points to +565bps over bmk*
5-yr T-bond HU5YT=RR +22 basis points to +528bps over bmk*
10-yr T-bond HU10YT=RR +27 basis points to +437bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1041 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 Ruth Pitchford)
