BUDAPEST/WARSAW: Polish assets mostly lagged a Central European rebound on Friday, amid a row in parliament about a likely EU crackdown on Warsaw's political establishment over alleged rule-of-law violations.
The European Commission has given Warsaw until Monday to make significant progress on the issue, while Prime Minister Beata Szydlo told parliament she would not respond to an ultimatum.
The standoff stems from changes that the government imposed on Poland's constitutional court.
The zloty eased a quarter of a percent to 4.422 against the euro by 1400 GMT, failing to rebound after central bank governor designate Adam Glapinski said the bank could calm markets with currency intervention if needed, and that interest rates had reached bottom.
His comments, to lawmakers, shed no new light on the costs to banks of converting Swiss franc mortgages, viewed as a key risk to Polish asset prices, a Warsaw-based dealer said.
The Warsaw bourse's bluechip stock index dipped to a 3-month low before joining a rebound in Asia and other parts of Europe.
The index rose 0.5 percent, with a 2.5 percent fall in the shares of bank Pekao - after a source told Reuters Italy's UniCredit may cut its holding in businesses including Pekao - keeping gains in check.
Hungary's forint touched a 4-month low at 317 against the euro, easing 0.1 percent as investors awaited a review of the country's rating by agency Fitch after the market close.
Expectations for an upgrade into investment grade have been significantly scaled back in markets in the past weeks, after the government announced a rise in the planned budget deficit for 2017 to 2.4 percent of economic output.
"I expect a negative surprise from Fitch, even a cut in the rating outlook (from positive) cannot be ruled out," one Budapest-based trader said.
Expectations for a 15 basis point base rate cut at a central bank meeting on Tuesday supported short-end bond yields.
Hungarian yields dropped by 2-4 basis points along the curve, retreating after weeks of rises.
Polish yields rose by 3-4 basis points.
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