BUCHAREST: Central European currencies mostly fell on Thursday as traders took defensive positions ahead of a European summit, with Polish assets additionally hit by Moody's comments that warned about a possible rating downgrade.
Rating agency Moody's said it may cut the outlook on Poland's A2 rating to negative if possible slippage in the country's deficit reduction plan sparks a significant rise in the government's funding costs.
"Sentiment generally is not good and Moody's comments just added fuel (to the zloty fall)," said one Warsaw-based dealer.
On the European front, EU member states have agreed that around 100 billion euros is needed to recapitalise the European banking system, but remained split before a high-profile summit on Sunday over how to strengthen the euro zone's bailout fund.
Events in the euro zone are dominating central European markets because of their close trade and banking ties, and currencies regained some ground as the euro rallied on clearer signs of how European officials plan to tackle the debt crisis.
"Failure to come up with a plan brought back risk-off," a Bucharest dealer said.
Polish and Romanian central banks have intervened to support their currencies, helping to move them away from 27-month and 15-month lows respectively.
Dealers said while currencies were still not far from intervention territory, action seemed unlikely unless losses accelerated.
"We believe that CEE currencies will be unable to develop any significant appreciation beyond short spells of central banks' interventions," BNP analysts said in a note.
By 1437 GMT the zloty fell almost 1.0 percent to the euro. The Czech crown fell 0.2 percent, while Romania's leu crept some 0.2 percent higher.
Regional stocks were also in the red with Warsaw's main stock index WIG20 leading losses, falling almost 2.0 percent.
Hungary cut its 5-year and 15-year bond sales on Thursday while it sold 20 billion forint worth of 3-year bonds as planned as fears over a potential downgrade of Hungary's rating and euro zone worries reduced demand for papers with longer maturities.
Concerns Hungary may lose its investment-grade rating also pressured the forint that fell 0.5 percent against the euro on Thursday.
In Poland, bonds were also weaker, in the light of Moody's comments and the overall global mood, while Romania sold less than planned 3-year bonds with average yields unchanged from a previous tender in September.
Romania's finance ministry has been struggling to sell debt since August due to higher yield demands on concerns over the euro zone debt crisis and tension on the internal funding market.
Copyright Reuters, 2011