CEE MARKETS 4-Zloty sinks to 4-1/2 yr low as FX continues slide

                                
 (Adds forint, crown rebounds)
                                
 By Dagmara Leszkowicz and Jason Hovet
                                
 WARSAW/PRAGUE, Feb 4 (Reuters) - Fleeing foreign investors
drove the Polish zloty to its lowest since June 2004 on
Wednesday, and central Europe's currencies stayed weak under the
weight of recession fears and a collapse in fund flows.
                                
 The Hungarian forint rebounded from a record low of 304 per
euro, which some dealers said may have been the result of
central bank intervention to prop up the unit.
                                
 The central bank declined comment. [ID:nL4580034]
                                
 The zloty <EURPLN=> dropped 0.9 percent to 4.676 per euro by
1442 GMT, cutting some losses but keeping pressure on bonds. The
forint was bid at 297.2, up 0.7 percent from Tuesday. Both
currencies have lost about 11 percent already in 2009.
                                
 "The fate of the zloty is definitely in the hands of foreign
investors as domestic ones are completely inactive," a
Warsaw-based dealer said.
                                
 Steep manufacturing drops are signalling a rough landing for
the region's export-heavy economies. That has spooked investors
who, buffeted by other emerging markets news including a
sovereign rating cut for Russia by agency Fitch, have
accelerated the outflow of funds from the region.
                                
 Rate setters have loosened policy -- Romania cut by 25 basis
points to 10 percent on Wednesday -- eliminating some of the
premium of the higher-yielding assets, which analysts warn could
lead to a collapse in currencies. [
                                
 "This way, both countries have an additional driver of a
devaluation spiral."

                                
 The zloty has lost 27.8 percent and the forint 20.9 percent
since mid-2008 -- a stark reversal from the all-time highs
central European currencies traded at in the summer.
                                
 Despite the depreciation, Poland's central bank governor
said there was no need to prop up the currency. [ID:nWAR007878','yes')">ID:nL4248765
                                
 "In both (Hungary and Poland), high degrees of
foreign-currency denominated debt make the real economic
situation worse," Ulrich Leuchtmann, head of foreign exchange
research at Commerzbank in Frankfurt, wrote on Wednesday.
                                
 "This way, both countries have an additional driver of a
devaluation spiral."
                                
 The zloty has lost 27.8 percent and the forint 20.9 percent
since mid-2008 -- a stark reversal from the all-time highs
central European currencies traded at in the summer.
                                
 Despite the depreciation, Poland's central bank governor
said there was no need to prop up the currency. [ID:nWAR007878]
                                
 In Hungary, some dealers suspected intervention in the
market. "We have heard from market talk that a German bank,
which is not a regular player in the Hungarian market, sold
Swiss francs against forints. Dealers believe this is an
intervention," one Budapest-based currency dealer said.
                                
 On Tuesday, the central bank said the excessive volatility
of the forint was harmful. The governor said the bank had the
appropriate tools to dampen excessive swings. [ID:nL3409512]
                                
 
                                
 NEW PRESSURES
                                
 Ratings agency Moody's said on Wednesday it was comfortable
with Hungary's A3 debt status at the moment, but the country's
economic outlook and large foreign currency denominated private
debt posed a risk. [ID:nL496524]
                                
 Fitch cut emerging market giant Russia's rating to BBB from
BBB+ on Wednesday, adding to emerging Europe woes as the move
puts pressure on the region's reference currency, the euro.
                                
 In Romania, the leu <EURRON=> was down a touch at 4.302 to
the euro after the first cut in interest rates in 19 months.
                                
 "It (the cut) is not going to have much of an impact on
overall liquidity levels. Market interest rates don't bear much
resemblance to the policy rate at present," said James Lord,
strategist at Standard Bank in London.
                                
 The Czech crown <EURCZK=> rebounded to 28.225 to the euro on
profit-taking before a rate decision on Thursday, with
expectations of a half percentage point cut.
                                
 
----------------------MARKET SNAPSHOT-------------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2009 
Czech crown      <EURCZK=>   28.225   28.477  +0.89%    -5.22%
Polish zloty     <EURPLN=>    4.641    4.598  -0.93%    -11.33%
Hungarian forint <EURHUF=>  297.2    299.24   +0.69%    -11.32%
Croatian kuna    <EURHRK=>    7.4      7.381  -0.26%    -0.47%
Romanian leu     <EURRON=>    4.302    4.299  -0.07%    -6.69%
Serbian dinar    <EURRSD=>   92.55    94.24   +1.83%    -3.32%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond   CZ2YT=RR    -11 basis points to  89bps over bmk*
4-yr T-bond   CZ4YT=RR    -2 basis points to  +102bps over bmk*
8-yr T-bond   CZ8YT=RR    -16 basis points to  +103bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond   PL2YT=RR   +11 basis points to  +357bps over bmk*
5-yr T-bond   PL5YT=RR    0 basis points to  +289bps over bmk*
10-yr T-bond PL10YT=RR    0 basis points to  +244bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond   HU3YT=RR   +91 basis points to  +916bps over bmk*
5-yr T-bond   HU5YT=RR   +85 basis points to  +870bps over bmk*
10-yr T-bond   HU10YT=RR +50 basis points to  +659bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1549 CET.
Currency percent change calculated from the daily domestic 
close at 1600 GMT.
                                
 
                                
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 (Reporting by Reuters bureaus, Writing by Jason Hovet and
Dagmara Leszkowicz; editing by David Stamp and Victoria Main)