(Recasts to adds quotes, details, update prices)
By Dagmara Leszkowicz and Jason Hovet
WARSAW/PRAGUE, Feb 17 (Reuters) - The Hungarian forint fell
to a record low against the euro on Tuesday and Poland's zloty
neared its own trough over fears of souring currency options at
Polish firms and rising concern about emerging Europe's reliance
on foreign debt.
Moody's rating agency said the accelerating recession in
emerging Europe will be more severe than elsewhere due to large
imbalances and it could threaten the ratings of local banks and
their western parents [].
The Czech crown weakened to its lowest since November 2005,
dragged lower by the zloty as sentiment was also hit by a Polish
central bank report casting doubt on Warsaw's plans to adopt the
euro in 2012.
"(The zloty) has been tanking so much because of the option
losses and the open FX positions by corporates have not been
fully covered," said Koon Chow, a Barclays Capital strategist.
"As the zloty depreciates, they have to do more buying of
euro, which of course leads to more depreciation."
At 1244 GMT the zloty <EURPLN=> was around 1.7 percent down
against the euro, and near its all time low, to bid at 4.88
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 through a pause in policy easing.
The zloty has plunged 31.5 percent since Sept. 1, leaving
many companies to report losses on currency options contracts,
with some signed near the zloty's August peak. []
Polish financial regulators say the exposure to currency
derivatives does not exceed 15 billion zlotys ($4.0 billion).
Stock markets sank on Tuesday, led lower by banks and a 6
percent fall in Prague <>. []
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 [].
TD Securities analyst Bartosz Pawlowski said the collapse in
currencies could hit the region's numerous foreign-currency
borrowers and potentially lead to an "outright collapse of the
financial system", while falling GDP could hit domestic currency
loans and lead to rising defaults.
The report 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."
TALKING UP
Polish central bank Governor Slawomir Skrzypek and fellow
rate-setters Andrzej Slawinski and Dariusz Filar attempted to
talk up the zloty in media interviews, saying its decline was
overdone and that the economy's fundamentals should eventually
help it recover [].
In Hungary, the forint <EURHUF=> weakened 1 percent and
touched an all-time low of 309.5 to the euro, while the Czech
crown slid 1.5 percent to its lowest since November 2005.
Romania's leu <EURRON=> outperformed to hold steady and
dealers cited rumours of more central bank intervention.
"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.
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.
The forint is off 22.1 percent since September, while the
crown has shed 15.8 percent and the leu 18.2 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."
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 pressure to bonds.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 29.518 29.07 -1.52% -9.37%
Polish zloty <EURPLN=> 4.88 4.798 -1.68% -15.68%
Hungarian forint <EURHUF=> 306.24 303.2 -0.99% -13.94%
Croatian kuna <EURHRK=> 7.47 7.436 -0.46% -1.41%
Romanian leu <EURRON=> 4.301 4.304 +0.07% -6.66%
Serbian dinar <EURRSD=> 93.969 93.599 -0.39% -4.78%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -16 basis points to 165bps over bmk*
4-yr T-bond CZ4YT=RR -28 basis points to +161bps over bmk*
8-yr T-bond CZ8YT=RR +3 basis points to +260bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +24 basis points to +452bps over bmk*
5-yr T-bond PL5YT=RR +21 basis points to +375bps over bmk*
10-yr T-bond PL10YT=RR +10 basis points to +311bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +43 basis points to +1078bps over bmk*
5-yr T-bond HU5YT=RR +26 basis points to +955bps over bmk*
10-yr T-bond HU10YT=RR +35 basis points to +771bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1355 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 Dagmara
Leszkowicz; Editing by Michael Winfrey/Ian Jones/Andy Bruce)
