* EU rejection of wider CEE bailout hits currencies
* Morgan Stanley cuts forecasts on CEE banks, stocks fall
* Latvian PM-designate says 2009 fight to avoid bankruptcy
* EU's Almunia says more CEE help may be needed
(Adds Almunia comments, Latvia PM, quotes)
By Jason Hovet
PRAGUE, March 2 (Reuters) - Emerging European currencies
plunged on Monday, led by a 2.5 percent drop in the Hungarian
forint, after a summit of European Union leaders rejected a mass
bailout plan for the region.
The dismissal of a Hungarian call for a 180-billion euro
plan dashed hopes of a swift move toward a broader deal to
underpin the EU's eastern wing and steady nerves that have hit
even its better-balanced economies.
Central Europe's currency, debt and stock markets have been
battered by concerns about weakening growth and banks and their
heavy reliance on external funding -- despite some policymakers'
efforts to distance themselves from weaker neighbours.
The Poles and Czechs have watched a euro zone recession and
the credit crunch slam the brakes on their economies but contend
they are still far better off than Hungary and Latvia, which
have sought bailouts from the International Monetary Fund.
European Monetary Affairs Commissioner Joaquin Almunia said
on Monday the EU was doing a huge amount to support its eastern
members, but said more may be needed. [] []
He said Monday's falls were not a result of weekend
decisions. Analysts said the lack of a unified response had hurt
markets and that investors would not differentiate between
states until the region secures a broader aid package to
underpin confidence. []
"Markets, especially currencies, will continue to push for a
strong policy response and so we must wait and see what next
steps are taken at an EU level," Nomura emerging markets
economist Peter Attard Montalto said in a note.
STAGGERING
EU leaders also held out the prospect on Sunday of faster
euro zone entry for single currency aspirants, but analysts said
that offered little solace to investors who fear the region's
woes could also spill over to the West. []
The most immediate trouble is a collapse in industry due to
consumers snapping their purses shut in richer Western EU
states. PMI purchasing managers' data showed the Czech and
Polish manufacturing sectors ticking up slightly in January but
contracting significantly overall[] [].
Polish gross domestic product data also showed the economy
grew 2.9 percent year-on-year in the fourth quarter, better than
expected although analysts said the slowdown would deepen in the
region's largest economy. []
"We are still very much at the stage where every month
forecasts for 2009 are being revised and the 2010 outlook
becomes bleaker," said ING analyst Agata Urbanska.
The sliding currencies also threaten hundreds of thousands
who borrowed in euros or Swiss francs and now face skyrocketing
loan payments, while in Poland firms are struggling under the
weight of currency options contracts made last year when the
zloty was around 50 percent stronger than now.
Analysts also fear countries like Latvia and Bulgaria that
operate currency boards may have to devalue, which could push
many borrowers towards loan default and undermine banking.
On Monday, Latvian prime minister-designate Valdis
Dombrovskis said 2009 would be a fight to avoid the state going
bankrupt as the economy worsens and social tension rises
[].
Latvia's central bank said it spent 40 million euros on
buying lats last week, the first time since a December IMF deal,
[] while the outgoing government warned its budget
deficit would near 10 pct of GDP without further spending cuts.
EMERGING MARKET WORRIES
Investors also cut riskier emerging market positions as
financial sector worries were fuelled by a huge rights issue
from HSBC <HSBA.L> and news the U.S. government was set throw a
fresh lifeline to troubled insurer AIG. <AIG.N>.
The forint <EURHUF=> sank to 307.2 per euro by 1311 GMT,
down 2.5 percent from Friday's closing level but still off its
all-time low of 310. The Polish zloty <EURPLN=> lost 1.7 percent
to 4.751 per euro and the Czech crown <EURCZK=> shed 1 percent
to bid at 28.37 per euro.
The weaker currencies hurt government bonds, with yields
continuing to tick up. Romania's leu <EURRON=> outperformed on
speculation the central bank may intervene, dealers said.
Stocks weakened, mirroring losses in Western Europe due to
the financial sector fears. Prague <> lost 1.6 percent while
Warsaw <> <> nudged lower. Banks came under pressure
after Morgan Stanley cut several price targets, saying it
remained cautious on the region. []
The zloty has shed 13.4 percent this year and a third of its
value versus the euro since hitting record highs last summer.
The forint has lost 14.2 percent in 2009, while the crown is off
5.7 percent and the leu 6.7 percent.
(Reporting by Reuters bureaus, writing by Mike Winfrey and
Patrick Graham)
