BUDAPEST: Polish financial sector stocks regained some ground on Wednesday after sliding for two days due to worries over the fallout from the bankruptcy of small lender SK Bank.
But sentiment remained fragile, illustrated by the zloty and the forint, Central Europe's most liquid currencies, weakening to 2-week lows against the euro.
Although EU membership shields the region's assets against contagion from other European emerging markets, they were not immune to geopolitical worries triggered by the downing of a Russian warplane by Turkey near its Syrian border.
"I had been predicting the zloty firming this week but it depends on the attitude of big foreign banks, which are reluctant to buy it," said a Warsaw-based currency dealer.
"Events in Turkey/Syria contribute to this attitude."
The weakness of the euro, which hit a 7-month low against the dollar, also weighed on market sentiment.
The zloty weakened by 0.1 percent versus the euro, while the forint eased slightly more after a senior central bank official said further monetary easing could come in December. The official said this was partly because a stronger-than-expected forint contributed to downwards inflation risks.
In stock markets, the shares of Poland's biggest bank PKO BP rose 0.4 percent, Pekao bank gained 1.2 percent and mBank gained 1.7 percent.
Poland's new government, sworn in last week, plans to impose a big tax on the financial sector, a prospect that weighed on bank stocks even before SK Bank was declared bankrupt on Monday.
The Warsaw bourse's bluechip index stayed near 6-year lows, pulled down by state-run gas distributor PGNiG , whose shares fell 2.9 percent after energy regulator URE said Poland may next year remove controls on gas prices paid by the biggest industrial consumers.
Meanwhile, a draft bill to slash Hungary's hefty bank tax failed to lift the stocks of biggest lender OTP.
The shares shed 0.9 percent to 5,979 forints ($20.28), returning to levels below the key psychological line at 6,000 which the share has crossed several times in the past week.
The OTP stock is still near 7-month highs and Budapest's main index has gained 41.6 percent this year, while Poland's bluechip index has shed 16.5 percent.
Turnover in Budapest, however, lags far behind Warsaw. The Hungarian central bank bought a majority stake in the Budapest Stock Exchange on Friday with the ambition of boosting turnover.
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