(Recasts with Polish PM)
By Dagmara Leszkowicz and Jason Hovet
WARSAW/PRAGUE, Feb 17 (Reuters) - Poland's zloty fell near
an all-time low versus the euro on Tuesday, prompting the
government to say it may start selling euros on the open market.
Polish Prime Minister Donald Tusk said his government could
sell European Union funds on the currency market if the zloty
fell to 5.0 versus the euro, which briefly lifted the unit by
0.8 percent. []
The Hungarian forint fell to a record low and the Czech
crown touched its lowest since October 2005, with concern rising
over the region's reliance on foreign debt.
Moody's warned the accelerating recession in emerging Europe
will be more severe than elsewhere due to large imbalances.
[]
The ratings agency said it could threaten the ratings of
local banks and their western parents, prompting a selloff in
banking stocks and sending the euro lower. []
Sentiment was also hit by a Polish central bank report
casting doubt on Warsaw's plans to adopt the euro in 2012, and
dealers said souring currency options contracts for local
corporates accelerated the Polish currency's descent.
"(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 1458 GMT the zloty <EURPLN=> was 2.5 percent down against
the euro, and near its all time low, at 4.922 bid 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 32.1 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 a 7 percent fall
in Prague <> and 6 percent drop in Warsaw. []
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 [].
"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 bankers, including the governor 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 1.5 percent and
touched an all-time low of 309.5 to the euro, while the Czech
crown slid 1.8 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 after many countries
like Hungary and Romania ran large current account deficits,
distinguishing it from other emerging markets.
The currency weakness also poses a dilemma for central banks
trying to cut interest rates to support their economies, and
threatens borrowers in countries, like Hungary, Romania, and to
some extent Poland, that have taken out cheaper foreign currency
loans. []
The forint is off 22.5 percent since September, while the
crown has shed 16.2 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."
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=> 29.605 29.07 -1.81% -9.63%
Polish zloty <EURPLN=> 4.922 4.798 -2.52% -16.4%
Hungarian forint <EURHUF=> 307.65 303.2 -1.45% -14.33%
Croatian kuna <EURHRK=> 7.47 7.436 -0.46% -1.41%
Romanian leu <EURRON=> 4.303 4.304 +0.02% -6.71%
Serbian dinar <EURRSD=> 93.95 93.599 -0.37% -4.76%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -1 basis points to 181bps over bmk*
4-yr T-bond CZ4YT=RR -26 basis points to +163bps over bmk*
8-yr T-bond CZ8YT=RR +22 basis points to +279bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +97 basis points to +1182bps over bmk*
5-yr T-bond HU5YT=RR +95 basis points to +1044bps over bmk*
10-yr T-bond HU10YT=RR +71 basis points to +862bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1603 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)
