Zloty rebounds on China, central bankers try to talk it up

BUDAPEST/WARSAW: Poland's zloty continued to recover from 4-year lows against the euro on Tuesday as Central European assets were helped by a return of risks appetite in global markets due to hopes that China will launch stimulus measures to fight economic slowdown.

The zloty and Polish government bonds plunged after late on Friday after Standard and Poor's (S&P) surprised markets by cutting Warsaw's foreign currency rating to BBB+ with a negative outlook from A-.

While S&P cited measures by the new government to weaken the independence of new institutions and other rating agencies may follow its move, Polish assets can get support from continuing healthy growth, analysts have said.

The zloty firmed 0.2 percent against the euro, but at 4.451 it was still weaker than its levels before the S&P downgrade around 4.4.

Polish central bankers also rushed to calm sentiment.

The bank's governor Marek Belka said he would do all he could to keep the zloty stable.

Adam Glapinski who is seen succeeding Belka later this year said late on Monday that the zloty had "incredibly strong fundamentals" and that interest rates should remain stable at their current record low levels.

Expectations for rate cuts had contributed to zloty weakness as the government has urged looser monetary policy. Five government-appointed new members will take their seat next month in the 10-member Monetary Policy Council, and new appointees will get to a majority in March.

Bucharest's main stock index led a rebound of Central European equities, rising 2.2 percent after 5 percent plunge to 26-month lows on Monday in an illiquid market due to worries over China and Poland and falling crude prices.

The dinar firmed 0.2 percent against the euro.

The Serbian central bank continued to buy the local currency to support it as it was fragile two days after Prime Minister Aleksandar Vucic announced he wants a snap parliamentary vote.

Slovenian stocks rose slightly after Prime Minister Miro Cerar late on Monday refused to accept the resignation offered by Finance Minister Dusan Mramor, an economist trusted by investors.