CEE currencies extend losses

Central European currencies extended losses on Friday as fears that Greece may face a chaotic debt default reignited concerns about Eastern Europe's exposure to the euro zone debt crisis. Hungarian government bonds continued to ease after weaker-than-expected debt auctions on Thursday and as worsening market sentiment in Europe put upward pressure on yields.
After a rally in January, the Czech crown and the Polish zloty shed almost 1 percent against the euro this week and the Hungarian forint lost more than half a percent. The Romanian leu, the region's most stable unit for over a year, has shrugged off the resignation of Romania's prime minister on Monday and the appointment of a new government, which is unlikely to change the course of economic policy.
The forint was bid at 293 against the euro at 1524 GMT, weaker by 0.6 percent from Thursday, though off 8-day lows hit earlier on Friday at 295.25. Hungarian assets had recently been propped up by government pledges to secure an international financial backstop.
Hungary hopes to start official credit talks with the European Union in early March. However, the euro zone debt crisis could continue to cause jitters in central European markets before then due to the region's trade links with the euro zone.
One foreign currency dealer said the next technical support for the forint was at 296 against the euro, which would open the way to 300 if it is broken. Hungary, which has the highest debt levels in the region and a disputed policy track record, may be the most vulnerable to further debt problems in the euro zone if markets question whether it can secure and keep a credit line, analysts said. However, other markets in the region are exposed too.
The Czech economy is seen much safer than Hungary, but on Friday both the crown and the forint were sold against the zloty which had led losses in the past week, the currency dealer said. All three currencies weakened in the afternoon, tracking the euro after the leader of a Greek coalition party said he could not vote in favour of a 130 billion euro bailout Greece needs to avoid defaulting on its debt. The crown fell 0.4 percent against the euro from Thursday to 25.141, the zloty shed 0.3 percent to 4.208, while the leu was flat at 4.348.
The Serbian dinar fell 0.2 percent to 108.7, after the IMF postponed a review of its standby lending deal with Serbia on Thursday in a standoff over government spending. Equities in the region also fell, tracking Western European peers on rising risk aversion. Budapest's main stock index fell 3 percent, Prague's fell 3.4 percent, Warsaw shed 1.3 percent and Bucharest dropped 0.8 percent.
A raft of fourth-quarter gross domestic product figures in the region next week will provide investors with clues about the impact of an economic slowdown in Western Europe. Poland has been shielded by its robust domestic economy whereas Hungary could face recession this year, which would make it more difficult for its government to keep its budget deficit low and avert the threat of being cut off from the EU's cohesion funds in 2013.