(Repeats story filed late on Monday)
* CEE central banks in unprecedented verbal intervention
* Cen banks say currency falls not backed by fundamentals
* Currencies jump, forint by up to 3.6 pct on the day
* More action needed to support forex in longer term
By Jan Lopatka and Krisztina Than
PRAGUE/BUDAPEST (Reuters) - Central European policymakers
took the unprecedented step of joint verbal intervention to
support their currencies on Monday, saying a sharp drop in
recent months did not reflect economic reality.
Hungary also left its interest rates unchanged in what
economists called the region's first action to staunch a selloff
that has bled up to a third of currencies' value and wreaked
havoc among borrowers.
Regional currencies jumped after the statements before
giving back some of the gains and analysts said the central
bankers' words would need to backed up by concrete actions to
underpin the currencies in the longer term.
"At last markets have got what they were looking for - the
first ever coordinated regional comments from central banks in
CEE," said Simon Quijano-Evans of brokerage C.A. Cheuvreux.
After investors turned sour on the region last week over
media reports of financing imbalances in the region, Central
bankers from Budapest, Prague, Warsaw and Bucharest said in
simultaneous statements the currency drop had been overplayed.
"There are regional risks, when central and eastern Europe
is treated by some reports as the sub-prime of Europe," said
Isarescu said Romanian central bank governor Mugur Isarescu.
"Even though we are in a position to have all the data that
shows this is not true, the perception is created and must be
addressed as a risk."
Czech central bank Governor Zdenek Tuma said markets should
differentiate between countries like Latvia, which are in bigger
trouble than say, the Czechs, and a debate on aid for the region
could help make those distinctions clear.
He also said the four central banks were communicating more
closely than normal and did not rule out joint action.
"We share the opinion that the currency swing in a number of
countries does not correspond to the real economic situation,"
Tuma told Reuters in an interview.
And in Poland, whose zloty has been one of the worst
performing emerging markets currencies, the central bank said it
was ready to act.
The coordinated move boosted the currencies. The Czech crown
<EURCZK=>, Hungarian forint <EURHUF=> and Polish zloty <EURPLN=>
each jumped by about 1 percent to the euro after the comments
and around 3 percent over Friday's close, clawing back from
steep losses from last week, but later gave back the part of the
gains made after the verbal interventions.
A collapse in overseas demand for the goods produced in the
export-heavy region has caused thousands of job losses, while
the credit crunch has hit domestic consumption, and pinched
governments and banks struggling to refinance debt.
Investors have dumped stocks, bonds and currencies, with the
latter causing debt costs and even principle to mushroom for
Hungarians and Poles who took euro and Swiss franc loans when
the forint and zloty were stronger.
Some policymakers and states including Austria -- whose
banks are heavily exposed to central Europe -- and British Prime
Minister Gordon Brown have called for aid to the region.
WORDS NOT ENOUGH
Despite Monday's gains, the zloty and forint are still down
11 percent for this year against the euro, with the Polish
currency having lost about a third of its value since last July.
The leu is down 6 percent, and Czech crown 5 percent.
Economists said the central banks would have to support
their talk with action if they wanted to halt the slides.
"Obviously, we are going to have to see concrete action now
too, and that could come in the form of a rate hike by the
(Poles) to start with in our view, together with some sort of
coordinated fx intervention if currencies weaken again, which is
likely," said C.A. Cheuvreux's Quijano-Evans.
Analysts said a backing-up of the central bank talk by
European authorities would also help stem the slide.
"We don't believe that this solves the problem completely
but it is an important step to restoring normality, especially
if the European Central Bank or the European Commission back
these efforts," said Bartosz Pawlowski, a strategist at TD
Securities.
The ECB did not comment. One move could be for central banks
to slow interest rate cuts despite the swift drop in growth,
although analysts said investors' low confidence in the region
mean higher rates will not lure them back quickly.
Hungary left rates at 9.5 percent on Monday after 200 basis
points in cuts since an emergency 3 percentage point rise last
October. Governor Andras Simor said a worse risk assessment of
Hungary was a factor in the decision.
(Editing by Toby Chopra)
