(Adds Hungary, Slovakia details)
By Jason Hovet
PRAGUE, Oct 10 (Reuters) - The global asset selloff swept
through central Europe on Friday, pummelling stocks and
currencies as fears that the mounting financial crisis would
spill over into the region rattled investors.
Hungary's forint touched a two-year low and Poland's zloty
was down nearly 3 percent at one point, while stock markets in
Prague and Budapest dropped more than 12 percent. Polish banks
shed as much as 8 percent.
Investors shunned the region's bond markets, which virtually
ground to a halt as spreads widened.
In Slovakia, a scramble for cash hit the normally quiet
crown currency <EURSKK=>, which is set to disapper next year
when the country swaps it for euros.
The regional sell-off followed a steep drop in Hungary's
forint late on Thursday as concerns grew over the country's
financing and banking system amid the global financial crisis
and as the government said it would redraft the 2009 budget.
Hungary's government and central bank announced several
measures on Friday to shore up the country's financial markets
[], while assuring on the country's fundamentals.
Market watchers mainly chalked the falls up to a reaction to
steep slides in developed global markets, but with a local mix.
"Basically it is the global backdrop. Global equities have
recorded heavy losses in the last 12 hours," said Martin Blum,
head of emerging markets economics and forex strategy at
UniCredit in Vienna.
"It's the combination of extreme global stress with
increased market focus on local vulnerabilities in that
environment."
The forint <EURHUF=> fell 2.3 percent to 264.75 against the
euro, while the Polish zloty <EURPLN=> recovered from earlier
losses to 2.4 percent down at 3.564 per euro by 1056 GMT.
The falls prompted assurances from respective central banks
and governments that the weakening was not due to fundamentals.
"The Polish economy has strong and stable fundamentals.
Those remain unchanged," said Polish Deputy Finance Minister
Katarzyna Zajdel-Kurowska [].
Central Europe's banking system has stayed mostly insulated
from the financial crisis that has intensified in Europe and
forced Iceland to take control of its largest lenders.
On Friday, Austria's Erste Bank <ERST.VI>, a major investor
in the region, said it had 300 million euros in exposure to
Icelandic banks.
SELLERS ONLY
In eastern Europe investors have mainly flashed red flags
around Hungary and Romania, which are more exposed to foreign
credit than most of their ex-communist European Union peers.
Hungary's largest bank OTP <OTPB.BU> rejected a government
offer to guarantee all of its interbank loans. Financial
regulators were also investigating possible market manipulation
after OTP shares plunged 14 percent in late Thursday trade.
[] [].
In regional bond markets, trading in Hungary and the Czech
Republic dried up after recent lower liquidity forced wider
spreads. In more liquid Poland, activity was limited.
Romania's leu <EURRON=> fell more than 2 percent, before
cutting losses to 3.8 per euro to trade 0.2 percent higher, and
dealers cited an indirect central bank intervention.
The Czech crown <EURCZK=> hit a four-month low after
breaking above the key 24.95 per level, but then it somewhat
recovered. By mid-morning it was 0.9 percent down from
Thursday's domestic close at 24.99.
Slovakia's crown <EURSKK=> sunk to 19-week lows, trading 1.2
percent down from Thursday morning at 30.75 per euro. The
crown's euro adoption conversion rate is 30.126 per euro.
Dealers said the crown's slide was beyond levels justified
by an interest rate differential that opened up this week when
the European Central Bank cut its rates by 50 basis points but
the Slovaks -- which had been at the same level as the ECB --
did not follow.
Dealers said investors with crown positions opened before
the conversion rate was set were willing to sell those holding
at smaller profits.
"Of course it's nonsense, but with the banks in the West
seeking euro liquidity, they are closing positions anywhere they
can," said Laco Benedek, a dealer at VUB Bank in Slovakia.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2008
Czech crown <EURCZK=> 24.985 24.767 -0.88% +5.71%
Polish zloty <EURPLN=> 3.564 3.482 -2.35% +1.01%
Hungarian forint <EURHUF=> 264.750 258.750 -2.32% -4.71%
Croatian kuna <EURHRK=> 7.145 7.130 -0.21% +2.48%
Romanian leu <EURRON=> 3.800 3.806 +0.16% -6.14%
Serbian dinar <EURRSD=> 79.960 79.618 -0.43% -1.52%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +20 basis points to 60bps over bmk*
5-yr T-bond CZ5YT=RR -5 basis points to +57bps over bmk*
10-yr T-bond CZ9YT=RR -13 basis points to +46bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +40 basis points to +337bps over bmk*
5-yr T-bond PL5YT=RR +21 basis points to +268bps over bmk*
10-yr T-bond PL10YT=RR +10 basis points to +217bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +5 basis points to +704bps over bmk*
5-yr T-bond HU5YT=RR -2 basis points to +668bps over bmk*
10-yr T-bond HU10YT=RR -5 basis points to +501bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1256 CET.
Currency percent change calculated from the daily domestic
close at 1500 GMT.
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(Reporting by Reuters bureaus, writing by Jason Hovet)
