(Updates throughout, adds byline)
By Marius Zaharia and Jason Hovet
BUCHAREST/PRAGUE, Feb 16 (Reuters) - Investors dumped
emerging assets on Monday after Japan fell deeper into recession
and a G7 meeting failed to calm nerves, denting risk appetite
and sending the Polish zloty and the Hungarian forint to new
lows.
The Czech crown slid to a three-year low after the investor
flight triggered stop losses in the morning.
Japan sank deeper into recession with its worst quarterly
contraction in 35 years, raising the aversion to risk that has
punished eastern Europe, already seen as most fragile to the
deteriorating global environment. []
On Friday, euro zone and central European GDP data showed a
darker outlook for emerging Europe's economies that rely heavily
on exports and external financing. []
"The global sentiment remains nervous," said Danske Bank
emerging markets analyst Lars Rasmussen. "The overall (regional)
driver is the deleveraging story and nervousness in all the
imbalances in central and eastern Europe."
By 1335 GMT, the Polish zloty <EURPLN=> weakened 3.3 percent
to 4.79 per euro, hitting its lowest since 2004 European Union
entry.
More doubt was cast on Polish government plans to adopt the
euro zone's common currency in 2012 after the central bank said
possible Exchange Rate Mechanism II entry would not be justified
in the current economic climate. []
The Hungarian forint <EURHUF=> fell 2 percent to 303.18 per
euro, after touching an all-time low of 304.75.
Hungary will raise the main value-added tax rate from July
to create room to cut taxes on labour, aiming to boost the
ailing economy, Prime Minister Ferenc Gyurcsany told Reuters.
The measures also include significant changes in the social
and pension system, and could allow the country to aim for euro
adoption between 2012 and 2014, he said. []
The Czech crown <EURCZK=> dropped 1.8 percent to 29.115 per
euro. The government approved Monday an economic stimulus
package worth 1.9 percent of gross domestic product.
[]
Romania's leu <EURRON=> fell 0.6 percent, outperforming
after a Moody's announcement on Friday that the ratings agency
would keep its stable outlook for now, dealers said.
The government said it was weeks away from deciding whether
it will ask for International Monetary Fund support, following a
move by Hungary last autumn as the international crisis cuts off
sources of cash. []
WORSE TO COME
Strategists have said emerging Europe's currencies will
weaken further despite heavy losses already this year, and that
the region is shakier than emerging economies in Latin America
or Asia.
"Investors are by now fully aware this is the region most
prone to further rating downgrades given the severe impact of
the current brake on EM capital flows, and the significance of
these flows to the country's balance of payments," Commerzbank
EM debt strategist Luis Costa wrote on Monday.
Tumbling economic growth has forced central banks to cut
interest rates, adding more pressure on the currencies and in
turn proving a dilemma for monetary policy.
Czech bond yields ticked higher at the short end, but showed
little reaction to the government stimulus plans, which were
mostly priced in.
Polish bonds were little changed in the morning, but zloty
weakness hit Hungary, where yields were up over 20 basis points.
However, Commerzbank said it saw some recovery coming.
"At this juncture we like the belly and the long-end of the
HUF curve, as front-end FRAs seem to have reached an important
resistance point," Costa said. "We'd like to go long five-year
HUF benchmarks versus paying fixed on five-year interest-rate
swaps."
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 29.115 28.594 -1.79% -8.11%
Polish zloty <EURPLN=> 4.79 4.632 -3.3% -14.09%
Hungarian forint <EURHUF=> 303.18 297.06 -2.02% -13.07%
Croatian kuna <EURHRK=> 7.42 7.43 +0.13% -0.74%
Romanian leu <EURRON=> 4.312 4.287 -0.58% -6.9%
Serbian dinar <EURRSD=> 93.559 93.569 +0.01% -4.36%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -3 basis points to 164bps over bmk*
4-yr T-bond CZ4YT=RR -25 basis points to +151bps over bmk*
8-yr T-bond CZ8YT=RR +11 basis points to +258bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1436 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 Marius
Zaharia/Jason Hovet; Editing by Andy Bruce)
