(Updates prices, adds Hungary bonds)
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.
Poland's zloty hit its lowest since January, and Hungary's
forint touched a two-year low before rebounding strongly, while
bourses in Prague, Budapest and Warsaw dropped more than 10
percent to hit multi-year troughs.
Investors mostly 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=>, set to disappear next year when the
country swaps it for euros. Further east, the Romanian central
bank intervened, selling euros to prop up the battered leu.
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.
"It's really contagion from what's going on globally. Equity
markets are struggling everywhere," said Lucy Bethell, a
currency strategist at Royal Bank of Scotland.
The prospects of a sharp slowdown in growth and bank
lending, along with less demand for assets in the region have
strong implications for central and easetern Europe, she said.
"People are just cutting back their positions," she said.
The forint <EURHUF=> clawed its way back from a loss of
around 2 percent to trade 0.3 percent down at 259.8 against the
euro, while the Polish zloty <EURPLN=> recovered some earlier
losses to be 2.8 percent down at 3.58 per euro by 1446 GMT.
The falls prompted assurances from respective central banks
and governments that the weakening was not due to fundamentals.
"Foreigners were heavy (euro) buyers in the morning but that
evaporated towards the end of the day," a Budapest dealer said.
Goldman Sachs recommended on Friday that investors close
earlier Polish zloty/Hungarian forint short positions due to
Hungary's bigger exposure to the liquidity crunch [].
Currencies have swung widely in the past month, with the
forint dropping 9.5 since Sept. 12, the last trading day before
U.S. investment bank Lehman Brothers filed for bankruptcy
protection, kicking the year-old credit crunch to a new level.
Romania's leu is off 5.9 percent in that time, while the
zloty has shed 7.6 percent and the Czech crown 3.3 percent.
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 and
have higher loan-to-deposit ratios.
Markets are getting hit by a "combination of extreme global
stress with increased market focus on local vulnerabilities in
that environment," said Martin Blum, head of emerging markets
economics and forex strategy at UniCredit in Vienna.
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.
[] [].
Hungarian bond activity came alive somewhat after the new
measures, including less regulation on pension funds and a cut
back on planned government debt issues this year [].
"The measures announced so far helped a little, but this is
not enough," a local fixed income trader said. "There is some
trading in three- and five-year bonds, but not much; the broker
has quotes but with wide, 20-25 basis point spreads."
In Romania, where the bourse was shut for a second time this
week, the leu currency <EURRON=> fell more than 2 percent,
before cutting losses to 3.793 per euro to trade 0.3 percent up.
The central bank sold 40 million euros at midday in a move it
said was aimed at testing the market [].
The Czech crown <EURCZK=> hit a four-month low above 25 per
euro before a rebound to 24.895, down 0.5 percent.
Slovakia's crown <EURSKK=> sunk to 19-week lows, trading 1.1
percent down from Thursday morning at 30.7 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.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2008
Czech crown <EURCZK=> 24.895 24.767 -0.52% +6.05%
Polish zloty <EURPLN=> 3.581 3.482 -2.84% +0.54%
Hungarian forint <EURHUF=> 259.830 258.750 -0.42% -2.76%
Croatian kuna <EURHRK=> 7.136 7.130 -0.08% +2.6%
Romanian leu <EURRON=> 3.793 3.806 +0.34% -5.94%
Serbian dinar <EURRSD=> 80.459 79.618 -1.06% -2.16%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +17 basis points to 57bps over bmk*
5-yr T-bond CZ5YT=RR -25 basis points to +37bps over bmk*
10-yr T-bond CZ9YT=RR -11 basis points to +47bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR 6 basis points to +333bps over bmk*
5-yr T-bond PL5YT=RR -7 basis points to +262bps over bmk*
10-yr T-bond PL10YT=RR -11 basis points to +211bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +2 basis points to +854bps over bmk*
5-yr T-bond HU5YT=RR -7 basis points to +817bps over bmk*
10-yr T-bond HU10YT=RR -11 basis points to +691bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1646 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)
