* Emerging stocks rally above recent 3-month lows
* Hungarian forint hits record low vs euro
* Polish zloty rises, conflicting views on ERM-2 entry
By Carolyn Cohn
LONDON, March 4 (Reuters) - Emerging market assets bounced
on Wednesday along with global markets on hopes of more stimulus
spending in China, but the forint hit a record low versus the
euro on increasing concern about Hungary's economy.
Emerging stocks recovered from the previous session's
three-month lows and sovereign debt spreads narrowed after China
said it would increase spending in areas such as infrastructure
and manufacturing. []
Any sign of increased demand from China provides a boost for
commodity-producing emerging markets.
But the forint fell, with investors increasingly worried
about exposure to weakening eastern European economies.
"Markets are still focused on global equity markets and on
central europe. Equity markets were also helped out by news that
China may be announcing a further stimulus plan," said Nigel
Rendell, emerging markets strategist at RBC.
"The Hungarian forint has fallen through a level that is
encouraging more selling. The weakness of its currency is
compounding Hungary's foreign debt problems. Investors are
beginning to think that the country may need more funding from
the IMF."
Hungary gained an IMF-led $25.1 billion rescue package last
October.
The forint hit a record low of 312.77 per euro <EURHUF=>
before edging back to 309.24, down 0.44 percent from the U.S.
close.
The cost of protecting Hungary's debt against restructuring
or default rose slightly to a mid-price of 585 basis points in
the five-year credit default swaps market, according to CMA
DataVision.
"The inflexibility on the exchange rate front leaves the
economy set to dip deeper into recession, just aggravating the
government's problems on the budget financing front," said Tim
Ash, head of CEEMEA research at RBS, in a client note.
"Hungary has already suffered multiple rating downgrades,
and its investment grade rating must be under threat in the
current environment."
Ratings agency Fitch cut the outlook on Hungary's BBB rating
to negative from stable this week.
Emerging stocks rose 2.12 percent <.MSCIEF>, after hitting
their lowest since late November on Tuesday.
Emerging sovereign debt spreads narrowed by 6 basis points
to 673 bps over U.S. Treasuries <11EMJ>.
Thomson Reuters emerging Europe CDS index stands at 950.87.
A CDS level of 1,000 bpS indicates distressed debt, or at least
did so before the recent crisis in banking liquidity and global
economies lifted CDS prices across the board.
Elsewhere, most emerging market currencies were steady to
firmer, although the rand <ZAR=> briefly hit three-month lows.
The Polish zloty rallied 0.62 percent against the euro
<EURPLN=> amid conflicting views by policymakers on the
likelihood of early ERM-2 entry for Poland.
Poland's economy minister said the current zloty level was
"much more reasonable" for joining the ERM-2 exchange rate
mechanism, but central bankers cast doubt on the government's
plans for euro zone entry in 2012. []
Banking supervisory authorities from the Czech Republic,
Hungary, Slovakia, Poland, Romania and Bulgaria said in a joint
statement that "publicly released initiatives" highlighting the
exposure that banks in western EU members have to central and
eastern Europe were undermining efforts to uphold stability.
[]
(Additional reporting by Sebastian Tong; editing by David
Stamp)
