(Updates prices, adds S&P, Romanian FDI)
By Jason Hovet and Dagmara Leszkowicz
PRAGUE/WARSAW, Feb 17 (Reuters) - The Polish zloty plunged
to near an all-time low to the euro on Tuesday, dragging its
peers weaker and prompting the government to set a floor by
saying it would intervene if the currency dipped much further.
Polish Prime Minister Donald Tusk said his government could
sell European Union funds through the market if the zloty fell
to 5.0 per euro, the clearest verbal intervention yet in a
tumble that has cut the zloty's value to the euro by a third
since last summer.
The unit briefly jumped 0.8 percent. []
The Hungarian forint also 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 recession in emerging Europe will be more
severe than elsewhere due to large imbalances and said the
crisis could threaten the ratings of local banks and their
western parents. [] []
Rival agency Standard & Poor's said the region's banks were
becoming more dependent on overseas funding from West European
parents, and growing difficulties faced by Western banks in
supplying financing could prompt an overall ratings review.
[]
The Moody's news prompted 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
companies had 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 1647 GMT the zloty <EURPLN=> was 2.5 percent down against
the euro, and near its all time low, at 4.921 bid after falling
more than 4 percent on Monday. Government bond yields rose due
to the currency's weakness.
Analysts said the steep fall might also prompt the central
bank to support the zloty through a pause in policy easing.
The zloty has plunged 32 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 could be up to 15 billion zlotys ($4.0 billion).
Stock markets sank on Tuesday, led lower by a 7 percent
falls in Prague <> and Warsaw <>. []
"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, also tried
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 October 2005.
Romania's leu <EURRON=> outperformed to hold steady and
dealers cited rumours of more central bank intervention.
But the country's finance minister said foreign direct
investment may fall by a third this year, adding to concerns
about future access to cash needed to finance economic
imbalances. []
"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 economies, and threatens
borrowers in Hungary, Romania, and to some extent Poland, that
have taken out cheaper foreign currency loans. []
The forint is off 22.6 percent since September, while the
crown has shed 16.1 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=> 29.615 29.07 -1.84% -9.66%
Polish zloty <EURPLN=> 4.921 4.798 -2.5% -16.38%
Hungarian forint <EURHUF=> 307.88 303.2 -1.52% -14.4%
Croatian kuna <EURHRK=> 7.47 7.436 -0.46% -1.41%
Romanian leu <EURRON=> 4.298 4.304 +0.14% -6.6%
Serbian dinar <EURRSD=> 94.016 93.599 -0.44% -4.82%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -3 basis points to 179bps 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 +278bps 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 +94 basis points to +1043bps 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 1747 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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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 []
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(Reporting by Reuters bureaus, Writing by Jason Hovet;
Editing by Michael Winfrey/Ian Jones/Andy Bruce)
