* CEE markets plunge as Greek woes hit sentiment
* Romania cuts rates 25 bps as expected
* Polish PMI flat around 25-month high
(Updates prices and adds new comment)
By Jason Hovet and Gergely Szakacs
PRAGUE/BUDAPEST, May 4 (Reuters) - Central European assets
fell on Tuesday as market doubts about the effectiveness of an
aid package for Greece and a closer focus on high state debt
levels in peripheral euro zone states curbed appetite for risk.
"People's eyes are beginning to open up to the magnitude of
debts across Europe," said a currency dealer in Budapest.
Markets have greeted a record 110 billion euro bailout for
Greece with some reservation, and investors doubted it would
offer more than temporary relief. []
Concerns that Greece's struggles could spill over to other
euro zone peripherals have hung over emerging European Union
countries in the past weeks despite the region's lower debt load
and stronger growth outlook.
Risk aversion grew on Tuesday and funds flowed into safe
haven assets, knocking off 3.7 percent from Poland's main
<> equity index and sending Budapest's <> lower by 3.5
percent -- their biggest daily drop since September 2009.
The forint <EURHUF=>, which outperformed the region around
Hungary's elections last month, led losses, falling to its
lowest levels this year against the euro and was bid at 275.92
at 1622 GMT, weaker by 2 percent from Monday.
"I don't think there is panic but everybody is afraid now
what will happen to the other southern European countries after
Greece," a currency dealer said.
"We have not broken through 275 in a significant way...but
if the forint weakens further then 280 is a realistic target."
Analysts said uncertainty over the incoming Hungarian
government's economic plans and its commitment to an IMF-led
financial support programme may have played into the forint's
weak showing.
"It's a combination of euro weakness around doubts on
Greece's rescue, together with some country-idiosyncratic risks
around the new government and their commitment to their own IMF
programme on the fiscal deficit plan," said analyst Peter Attard
Montalto at Nomura. []
The region's most liquid unit, the zloty <EURPLN=> fell to
10-week lows to hit the key 4.0 level, shedding 1.7 percent. The
crown <EURCZK=> lost 1.1 percent, while the leu <EURRON=>, the
region's most stable unit this year, weakened by 0.4 percent.
ROMANIA CUTS RATES
The heightened market volatility in the past months has
pushed central European policymakers towards greater caution,
with slowing monetary easing in the case of Romania, and the
Czech Republic delaying a euro-denominated bond issue.
Earlier on Tuesday, Romania's central bank cut borrowing
costs by 25 basis points to a new record low of 6.25 percent, in
line with market expectations. []
The leu <EURRON=> was down 0.4 percent in afternoon trade,
with dealers saying subsequent comments from the bank that
tensions over the crisis in Greece may complicate an economic
recovery had no tangible market impact.
A large majority of analysts expect Greek worries to put
Czech rate setters in a wait-and-see mode at a Thursday policy
meeting. Markets, though, are split whether the central bank
will cut interest rates once more after recent dovish comments.
Czech 10-year government bond yields rose to a 3-week high
on Tuesday.
Poland's manufacturing Purchasing Managers' Index stabilised
near a 25-month high, but indicated the zloty's recent strength
was starting to weigh on exports. []
Polish and Hungarian government bonds also retreated.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.837 25.552 -1.1% +1.86%
Polish zloty <EURPLN=> 4 3.932 -1.7% +2.6%
Hungarian forint <EURHUF=> 275.92 270.3 -2.04% -2.02%
Croatian kuna <EURHRK=> 7.25 7.255 +0.07% +0.82%
Romanian leu <EURRON=> 4.145 4.128 -0.41% +2.23%
Serbian dinar <EURRSD=> 99.14 99.127 -0.01% -3.29%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +2 basis points to 79bps over bmk*
7-yr T-bond CZ7YT=RR +7 basis points to +91bps over bmk*
10-yr T-bond CZ9YT=RR +10 basis points to +89bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1822 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 []
Spot FX rates
Eastern Europe spot FX <EEFX=> 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 []
Top events [] Diaries [] Diaries Index []
(Reporting by Reuters bureaus, writing by Jason Hovet and
Gergely Szakacs, editing by Stephen Nisbet, John Stonestreet)
