* Emerging stocks fall, tracking global equities
* Ukraine in focus as IMF goes in
* Hungarian forint slumps as banks cut forex lending
* Iceland central bank cuts rates, sees severe economic
contraction
By Peter Apps
LONDON, Oct 15 (Reuters) - Stock markets across emerging
markets fell on Wednesday, with economic contagion from the
global financial crisis spreading to Hungary and Ukraine with
other central and eastern European markets in focus.
With troubled Iceland -- the country most damaged by the
increasingly global credit crunch -- still scrambling to secure
foreign currency and with the Icelandic crown still effectively
untraded internationally, fears of further crises are growing.
Ukraine's government confirmed on Wednesday it had called in
the International Monetary Fund (IMF), while the Hungarian
forint <EURHUF=> fell more than 5 percent at one stage against
the euro as local banks ceased lending in foreign currency.
Russia once again closed its RTS stock market <> for an
hour -- an increasingly regular occurrence -- after it fell 6.89
percent, exceeding technical limits.
Russian markets have been hugely volatile in recent weeks,
seeing mass capital flight as the worsening in the credit crunch
that followed the bankruptcy of Lehman Brothers came hard on the
heels of investor nerves over war with Georgia.
Overall benchmark emerging equities <.MSCIEF> fell 3.54
percent by 1000 GMT, after rallying earlier in the week on hopes
that Western governments' purchases of stakes in their own
troubled banks might help reboot the paralysed financial sector.
"In emerging markets, we are taking guidance from equity
markets globally -- which are obviously not doing well," said TD
Securities chief strategist Beat Siegenthaler.
Sovereign debt spreads were steady at 544 basis points over
U.S. Treasuries <11EMJ> after narrowing sharply on Tuesday.
After the collapse of Iceland's massively indebted banking
sector, which dragged down the crown currency and the wider
economy, analysts are increasingly nervous about more exposed
eastern and central European economies.
WATCHING FOR TROUBLE
Iceland's central bank warned on Wednesday the next phase of
its banking crisis would be difficult, and forecast severe
economic contraction. It cut interest rates by 3.5 percentage
points to 12 percent. []
It also said it was setting up a temporary daily auction
system to allow for international currency deals. [].
Ukraine's economy said an IMF team will arrive on Wednesday
to examine its financial situation. []
Ukraine has suffered widespread fears over the stability of
its banking system, is running a large current account deficit
and has seen increasing investor worries over political
instability after the ruling coalition collapsed and the Georgia
war drew attention to increasingly shaky relations with Russia.
The cost of insuring Ukrainian debt in the credit default
swaps market increased sharply by some 200 basis points to
1500-1700 bps, meaning it would cost between $1.5 and $1.7
million a year over five years to ensure $10 million of debt --
practically pricing in default.
Hungarian CDS were 30 basis points wider at 350-375.
"Hungary and Ukraine are under massive pressure," said one
trader. "It's hard to see any end in sight for these two
countries at the moment."
A second bank in Hungary imposed limits on foreign currency
loans on Wednesday, saying it wanted to protect clients from
currency swings, following one on Monday. []
Depreciation across emerging market currencies has made it
more difficult for local borrowers to repay foreign loans.
Normally, such loans would then be exchanged into local
currency, helping support the forint. Facing their removal from
the marketplace, the forint fell.
Other central and eastern European currencies were also
broadly lower, with the Czech crown <EURCZK=> down 0.63 percent
and the Polish zloty <EURPLN=> losing 1.42 percent.
"These headlines out of Hungary about banks stopping lending
in foreign currency has created quite a lot of volatility," said
Siegenthaler, seeing Romania and Poland as next most vulnerable
through having a large volume of foreign exchange loans.
Other analysts pointed to the Baltic states as potentially
next in line for serious trouble.
(Additional reporting by Carolyn Cohn, editing by Swaha
Pattanaik)
