CEE MARKETS 2-Romania leu sinks as govt partner resigns

                                
 * Leu extends losses after resignation
                                
 * Zloty weighed by dividend fate
                                
 
 (Recasts with leu, adds details)
                                
 BUCHAREST, Oct 1 (Reuters) - The Romanian leu fell on
Thursday, extending losses after the country's leftist coalition
partner Social Democrats resigned from the government, prompting
the central bank intervene to support the currency, dealers
said.
                                
 The resignation came in protest against the sacking of the
interior minister after the Romanian president approved on
Thursday the firing of Social Democrat Interior Minister Dan
Nica. [ID:nBUC003489] [ID:nL1491137]
                                
 Romania's Social Democrats rejected a proposal to appoint an
interior minister from outside coalition ranks on Wednesday.
                                
 Bucharest's centre-left coalition fell into crisis this week
after centrist Prime Minister Emil Boc sacked Nica and proposed
a replacement from his own party, just weeks before a November
polls. [ID:nLU497013]
                                
 The leu <EURRON=> extended losses in the morning, falling
0.8 percent to bid at 4.245 to the euro. The stock market also
dropped 1.2 percent, in contrast to gains by the region's other
bourses.
                                
 Dealers said declines were tempered by suspected central
bank intervention. "(The fall is) a definite reaction (to the
resignation). It could have been worse (for the leu) if the
central bank hadn't been in the market," a dealer said. 
                                
 The currency is still up 0.5 percent over the past two weeks
after gaining support from the approval of a new tranche of an
International Monetary Fund loan, while the central bank has
intervened in the market during that time, dealers said.
                                
 But the political instability raises questions about the
country's ability to implement fiscal consolidation.
                                
 "It is of course not good news for markets or for the
currency," said Commerzbank strategist Lutz Karpowitz. "(The
question is) what will be the next government, and what will it
mean for delays in reforms."
                                
 Other central European currencies fell, with the Czech crown
<EURCZK=> dropping 0.5 percent to 25.385 to the euro. Hungary's
forint dropped 0.2 percent but held on the strong side of 270,
ignoring data showing the region's economies were reaching
breakeven.
                                
 Poland's zloty <EURPLN=> dropped 0.3 percent, also weighed
down by a potential PZU dividend payout that will be decided on
Thursday and could flood the market.
                                
 "There is a big trade volume today but its quite balanced,"
said one Warsaw-based FX dealer. "The PZU AGM is the key today."
                                
 Purchasing Managers' Indices in the Czech Republic and
Hungary edged up, while stagnating in Poland, but stayed below
the mark the divides economic growth from contraction.
[ID:nPRA004785] [ID:nBUD005147] [ID:nL1106297]
                                
 "Views about the state of the Hungarian economy have
improved a bit and this supports the forint, (meaning) this
general sentiment, not necessarily individual data," a dealer in
Budapest said.
Central Europe's export-led economies have struggled to win
back orders lost in the economic crisis, but have got a
temporary lift from car scrapping subsidies in the west, mainly
from Germany, that has driven demand for the region's auto
industry.
                                
 However, government deficits are seen soaring this year and
next, building pressure on currencies that has halted but not
reversed a rally in the region seen since March lows.
--------------------------MARKET SNAPSHOT--------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2009 
Czech crown      <EURCZK=>   25.385   25.264  -0.48%    +5.39%
Polish zloty     <EURPLN=>    4.224    4.212  -0.28%    -2.58%
Hungarian forint <EURHUF=>  269.98   269.46   -0.19%    -2.38%
Croatian kuna    <EURHRK=>    7.261    7.26   -0.01%    +1.43%
Romanian leu     <EURRON=>    4.245    4.213  -0.75%    -5.43%
Serbian dinar    <EURRSD=>   92.963   92.96    0%       -3.75%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond   CZ3YT=RR    -4 basis points to  153bps over bmk*
7-yr T-bond   CZ7YT=RR    -2 basis points to  +177bps over bmk*
10-yr T-bond   CZ10YT=RR    0 basis points to  +173bps over bmk*
All data taken from Reuters at 1143 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; Editing
by Toby Chopra)