(Adds details, fixed income, dateline)
By Dagmara Leszkowicz and Jason Hovet
WARSAW/PRAGUE, Feb 17 (Reuters) - The Polish zloty and
Hungarian forint fell close to all time lows against the euro on
Tuesday as concern mounted about central and eastern Europe's
economies and the extent of their reliance on foreign debt.
Moody's rating agency said the recession in emerging Europe
will be more severe than elsewhere due to large imbalances and
this will put the ratings of local banks and their western
parents under pressure [].
Regional sentiment was also hit by a report from the Polish
central bank on Monday casting doubt on Warsaw's plans to adopt
the euro in 2012 and also, dealers said, by worries over FX
option losses by Polish companies.
The Moody's report alarmed markets on fears that the
region's problems may lead to a vicious circle as economic woes
morph into non-performing loans and hit banks, which in turn may
pull back vital financing to firms and consumers [],
exacerbating the pain. It also pushed the euro <EUR=> lower
against the dollar and depressed western European bank stocks.
"This (Moody's report) has been another nail in the zloty's
coffin," a London-based trader said. "Basically it is the
banking story for the region and that seems to have triggered
this latest wave of selling."
At 1127 GMT the zloty <EURPLN=> was around 1.4 percent down
against the euro, and near its all time low, to bid at 4.8875
after falling more than 4 percent on Monday.
Government bond yields rose due to the currency's weakness,
and analysts said the steep fall might prompt the central bank
to support the zloty.
"Obviously markets are now pushing for policy reaction out
of Poland, and the higher we head in EUR/PLN, the more the
(central bank) will have to stop cutting rates and possibly hike
in order to stem PLN depreciation," analysts from broker
Cheuvreux wrote in a note.
Governor Slawomir Skrzypek and fellow rate-setters Andrzej
Slawinski and Dariusz Filar attempted to talk up the zloty in
media interviews, saying its 16 percent fall this year was
overdone and that the economy's fundamentals should eventually
help it recover [].
The zloty's slide put pressure on the region's other
currencies, with Hungary's forint <EURHUF=> weakening 1 percent
and touching an all-time low of 309.5 to the euro, while the
Czech crown slid 1.1 percent to its lowest since November 2005.
Romania's leu <EURRON=> outperformed with a 0.2 percent drop
and dealers cited rumours of more central bank intervention.
Stocks fell, led by a 5 percent drop in Prague.
"There is no doubt that the markets have decided that CEE is
the subprime of Europe and now everybody is running for the
door," said Danske Bank economist Lars Christensen.
MORE TO COME
The zloty has been hit hardest since central European
currencies reached record highs in the summer. It has lost 33.8
percent since the beginning of August, while the forint is off
23.65 percent. The Czech crown has shed 18.7 percent and the leu
18.4 percent.
"If the region is hit further the forint <EURHUF=> may test
the 310 level today," a Budapest-based dealer said. "We are just
sitting here and gazing at the events. I don't know what's next
but there are very dark clouds gathering."
Strategist have said currencies will fall further as
capital inflows from the euro zone fade and that currency
weakness poses a dilemma for central banks trying to cut
interest rates to support their economies.
Currency weakness has also threatened borrowers in countries
like Hungary, Romania, and to some extent Poland, that have
taken out cheaper foreign currency loans. []
"Eastern Europe is different from other emerging markets
because they were running high current account deficits, which
means they were dependent on capital inflows for a long time,"
said Ulrich Leuchtmann, head of foreign exchange research at
Commerzbank in Frankfurt.
Credit default swaps (CDS) in the region have jumped more
than 50 basis points in the past week, adding to pressure on
bond markets.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 29.392 29.07 -1.1% -8.98%
Polish zloty <EURPLN=> 4.864 4.798 -1.36% -15.4%
Hungarian forint <EURHUF=> 306.34 303.2 -1.03% -13.97%
Croatian kuna <EURHRK=> 7.473 7.436 -0.5% -1.45%
Romanian leu <EURRON=> 4.314 4.304 -0.23% -6.94%
Serbian dinar <EURRSD=> 93.979 93.599 -0.4% -4.79%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -20 basis points to 162bps over bmk*
4-yr T-bond CZ4YT=RR -31 basis points to +159bps over bmk*
8-yr T-bond CZ8YT=RR +4 basis points to +260bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +25 basis points to +452bps over bmk*
5-yr T-bond PL5YT=RR +22 basis points to +376bps over bmk*
10-yr T-bond PL10YT=RR +12 basis points to +313bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +45 basis points to +1080bps over bmk*
5-yr T-bond HU5YT=RR +27 basis points to +956bps over bmk*
10-yr T-bond HU10YT=RR +37 basis points to +773bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1127 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 []
Spot FX rates Eastern Europe spot FX <EEFX=>
Middle East spot FX <MEFX=> Asia spot FX <ASIAFX=>
Latin America spot FX <LATAMFX=>
Other news and reports
World central bank news [] Economic Data Guide <ECONGUIDE>
Official rates [] Emerging Diary []
Top events [] Diaries [] Diaries Index []
(Reporting by Reuters bureaus, Writing by Dagmara
Leszkowicz; Editing by Michael Winfrey/Ian Jones)
