(Updates throughout)
By Dagmara Leszkowicz and Jason Hovet
WARSAW/PRAGUE, Oct 23 (Reuters) - The Czech crown led a
bounce for central Europe's currencies late on Thursday after
markets were battered for most of the session by investors
dumping emerging market assets and worried by events in Hungary.
The crown gained more than four percent against the euro
from session lows while the Polish zloty recovered after
touching its lowest level since summer 2006, with dealers citing
rumours of an IMF aid package for emerging markets.
A senior IMF official played down the rumour, saying the
fund's policy was to deal on a country-by-country basis, and
other traders said the crown had jumped on profit-taking by
London banks following the currency's previous losses.
"Markets are nervous in all of Europe, so we can expect more
volatility," a Prague-based currency trader said.
The Romanian leu <EURRON=> also recovered a footing late on,
but still lost 1.7 percent to 3.6 per euro to reverse a two-week
appreciation trend after banks' deadline to meet minimum reserve
requirements ended [].
Hungary's forint, the region's whipping boy of late, fell as
low as 285.3 per euro overnight, but the market will only get
back to normal trade after public holidays on Thursday and
Friday.
An unwinding of positions has hit emerging markets this week
as the global financial crisis begins to spill over, with
investors pulling money back to major western markets.
Stock exchanges have also been hit hard, with Warsaw's
blue-chip index dropped below 1,600 points for the first time
since May 2004 on Thursday.
The main indices <> <> fell more than 5 percent
before paring gains to close down around 4 percent.
"We see extremely weak equity markets across the board,
which indicates this flight to quality hitting emerging assets
is gaining speed again," said Ulrich Leuchtman, head of foreign
exchange research at Commerzbank in Frankfurt.
Elsewhere, the Serbian dinar <EURRSD=> extended losses on
Thursday to trade 1.5 percent down on the day at 83.38 per euro,
with dealers citing strong demand for the hard currency.
"The client demand is seasonally strong and banks are buying
euros because they are not drawing credit lines from their
parent banks," a senior treasury analyst said.
RATE HIKES, CUTS
In Hungary, officials have said the country was close to
reaching a deal with the International Monetary Fund (IMF) for
financial aid, which officials have said would be a last resort
as they seek to restore confidence in its battered markets.
Hungary's central bank surprised financial markets on
Wednesday by raising its interest rate by three percentage
points to 11.5 percent to bolster the forint, which has lost
11.8 percent this month.
The zloty, which is usually more stable, has shed 11.7
percent, while the Czech crown has fallen 1 percent in October.
Polish officials on Thursday sought to assure markets the
zloty's fall was not down to fundamentals and will only be
temporary []. Poland's prime minister said the
slide was not a cause for concern for now [].
On Wednesday, Czech central bank Vice-Governor Miroslav
Singer said the weaker currency may limit the need to cut Czech
interest rates [], and a fellow board member Eva
Zamrazilova said on Thursday there was room for a quarter
percentage point cut [].
Analysts were expecting another cut in borrowing costs this
year after the Czechs became the first in the region to ease
policy in August, with a 25 basis point drop to 3.5 percent.
"If the crown stays around these levels it's probable they
will cut," a Prague bond dealer said.
In Poland the latest poll showed the central bank's Monetary
Policy Council (MPC) is expected to leave interest rates
unchanged until at the end of the year before cuts in 2009.
Poland's bond market saw demand pick up slightly.
"The sellout continued today in the morning, but at the
morning levels some demand appeared," said Pawel Bialczynski, a
dealer at BRE Bank.
"Further developments will depend on the sentiment towards
emerging markets, but also on the performance of the zloty and
equities."
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2008
Czech crown <EURCZK=> 25.160 25.590 +1.68% +5.05%
Polish zloty <EURPLN=> 3.877 3.777 -2.65% -7.68%
Hungarian forint <EURHUF=> 277.260 275.950 -0.47% -9.65%
Croatian kuna <EURHRK=> 7.235 7.222 -0.18% +1.25%
Romanian leu <EURRON=> 3.600 3.541 -1.67% -0.55%
Serbian dinar <EURRSD=> 83.377 82.098 -1.56% -5.86%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +91 basis points to 190bps over bmk*
5-yr T-bond CZ5YT=RR +28 basis points to +164bps over bmk*
10-yr T-bond CZ9YT=RR +20 basis points to +154bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +42 basis points to +494bps over bmk*
5-yr T-bond PL5YT=RR +70 basis points to +441bps over bmk*
10-yr T-bond PL10YT=RR +89 basis points to +388bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1640 CET.
Currency percent change calculated from the daily domestic
close at 1500 GMT.
For related news and prices, click on the codes in brackets: All
emerging market news []
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(Reporting by Reuters bureaus, Writing by Dagmara
Leszkowicz/Jason Hovet; editing by Patrick Graham)
