(Updates throughout)
By Jason Hovet
PRAGUE, Oct 9 (Reuters) - Hungary's forint plunged on
Thursday after the bond market seized up and on the back of
market talk over the health of the country's largest bank that
was immediately denied by the government and the bank itself.
Central Europe has stayed mostly immune to the spiralling
financial crisis that has intensified in Europe in recent weeks,
pushed Iceland's top banks into government hands and rattled
investors.
The forint <EURHUF=> shed more than 2 percent in late
afternoon trade as traders cited rumours the government was
planning a fiscal rescue package for Hungary's OTP Bank
[]. By 1603 GMT, the currency was down 2.6 percent
at 258.95 against the euro.
"The government bond market has collapsed and there are
market rumours that OTP has difficulties," one Budapest-based
currency dealer said.
Another said: "There is a rumour coming from London that OTP
is getting nationalised."
OTP and the government immediately denied the rumour.
"This is absolutely nonsense," OTP Chairman and Chief
Executive Sandor Csanyi told Reuters in a brief telephone
interview. "Someone just speculating and trying to push the
stock down in an illiquid market."
Government spokesman David Daroczi said the rumour was
absurd.
The late fall soured the mood on neighbouring currencies,
with Poland's zloty shedding 1 percent to 3.507 per euro and the
Czech crown <EURCZK=> dropping 0.7 percent to 24.8.
The Romanian leu <EURRON=> cut gains seen from stop-losses
to end 1.6 percent up at 3.816 per euro. Some dealers said the
leu was also helped by the Romanian central bank's reiteration
on Wednesday that the banking sector was in good health.
But market jitters remain following the example of Iceland,
and analysts and investors have raised red flags around Romania
and Hungary due to the countries' exposure to foreign credit
and, in the case of Romania, a large current account gap.
"The risk is still twisted toward weaker currencies," said
Lars Christensen, emerging markets research head at Danske Bank.
In contrast, the Czech Republic and Poland are seen as being
better positioned to weather the growing financial crisis.
But Christensen added: "Neither the Czech Republic nor
Poland is immune to the global credit crunch."
The Czech central bank held off on discussing interest rates
at a meeting on Thursday, while Polish central bankers have
signalled there is less chance of more monetary tightening after
the world's major central banks slashed rates on Wednesday.
Tightening cycles in other central European countries are
now seen at an end for the most part, but the timing of any
lower moves is still uncertain.
LIQUIDITY CRUNCH
Heightened risk aversion globally has limited emerging asset
flows, while frozen credit markets have left investors hoarding
cash and cracks in regional markets are starting to show.
"The recent freeze in FX swap and forward markets increases
Hungarian banks' vulnerability and suggests possible further
depreciation pressures on the forint," Citigroup analysts wrote.
In fixed income, Hungary cut its 10-year government bond
auction offer on Thursday by 10 billion forints ($54.36 million)
to 30 billion forints as the global financial crisis cuts
liquidity [].
Bond trading came to an effective halt after spreads between
bid and ask quotes grew extremely wide, dealers said.
"Everybody's on one side and when everybody wants to sell,
there's no market," a dealer said.
Lower liquidity has pushed Hungarian and Czech market makers
to widen spreads. Prices on Czech bonds fell on Thursday.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2008
Czech crown <EURCZK=> 24.802 24.641 -0.65% +6.40%
Polish zloty <EURPLN=> 3.507 3.474 -0.95% +2.6%
Hungarian forint <EURHUF=> 258.950 252.420 -2.59% -2.41%
Croatian kuna <EURHRK=> 7.130 7.130 0% +2.68%
Romanian leu <EURRON=> 3.816 3.879 +1.62% -6.59%
Serbian dinar <EURRSD=> 79.618 80.518 +1.12% -1.09%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +11 basis points to 55bps over bmk*
5-yr T-bond CZ5YT=RR -8 basis points to +49bps over bmk*
10-yr T-bond CZ9YT=RR +60 basis points to +56bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR 1 basis points to +296bps over bmk*
5-yr T-bond PL5YT=RR -5 basis points to +244bps over bmk*
10-yr T-bond PL10YT=RR -1 basis points to +204bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -7 basis points to +699bps over bmk*
5-yr T-bond HU5YT=RR +1 basis points to +666bps over bmk*
10-yr T-bond HU10YT=RR -15 basis points to +503bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1803 CET.
Currency percent change calculated from the daily domestic
close at 1500 GMT.
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(Reporting by Reuters bureaus, writing by Marius Zaharia;
Editing by Victoria Main)
