* EU rejection of wider CEE bailout hits currencies
* Romania says in preliminary talks with IMF on deal
* 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
(Changes prices, adds Romania talks with IMF)
By Jason Hovet
PRAGUE, March 2 (Reuters) - Emerging European currencies
plunged on Monday, led by an almost 2.5 percent drop in the
Hungarian forint, after a summit of European Union leaders
rejected a mass bailout plan for the region.
Romania looked to be preparing to join a list of countries
rescued by the International Monetary Fund after a source said
Bucharest had started preliminary talks on a potential deal to
help finance its vast trade deficit [].
That list already includes Hungary and Latvia, the latter of
whose prime minister-designate Valdis Dombrovskis said 2009
would be a fight to avoid bankruptcy [].
The events followed EU leaders' dismissal of a Hungarian
call for a 180-billion euro plan, which dashed hopes of a swift
move toward a broader deal to underpin the bloc's eastern wing
and steady nerves that have hit even its better-off 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.
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 market 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.
SLIDING
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 February but
still in a significant contraction.
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.
EMERGING MARKET WORRIES
Investors also cut riskier emerging market positions as
financial sector worries were fuelled by a huge rights issue
from HSBC and news the U.S. government was set throw a fresh
lifeline to troubled insurer AIG.
The forint sank to 306.6 per euro by 1539 GMT, down 2.3
percent from Friday's closing level. It was still off its
all-time low of 310 but negative pressure built when agency
Fitch cut Hungary's ratings outlook to negative [].
The Polish zloty lost 1.8 percent to 4.751 per euro and the
Czech crown shed 0.4 percent to bid at 28.217 per euro.
The weaker currencies hurt government bonds, with yields
continuing to tick up.
Romania's leu outperformed on speculation the central bank
may intervene, dealers said, and a 92 million euro drop in the
country's foreign currency reserves in February, signalled it
had done just that last month [].
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.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 28.217 28.101 -0.41% -5.19%
Polish zloty <EURPLN=> 4.759 4.672 -1.83% -13.53%
Hungarian forint <EURHUF=> 306.61 299.52 -2.31% -14.04%
Croatian kuna <EURHRK=> 7.43 7.435 +0.07% -0.87%
Romanian leu <EURRON=> 4.304 4.296 -0.19% -6.73%
Serbian dinar <EURRSD=> 93.57 93.533 -0.04% -4.37%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +33 basis points to 252bps over bmk*
4-yr T-bond CZ4YT=RR -3 basis points to +249bps over bmk*
8-yr T-bond CZ8YT=RR +11 basis points to +306bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +13 basis points to +452bps over bmk*
5-yr T-bond PL5YT=RR +11 basis points to +385bps over bmk*
10-yr T-bond PL10YT=RR +9 basis points to +324bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +23 basis points to +1173bps over bmk*
5-yr T-bond HU5YT=RR +33 basis points to +1036bps over bmk*
10-yr T-bond HU10YT=RR +39 basis points to +845bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1739 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
(Reporting by Reuters bureaus, writing by Mike Winfrey and
Patrick Graham; Editing by Andy Bruce)
