BUDAPEST: Bucharest stocks plunged on Wednesday, with the Romanian government's tax and pension changes wiping out almost all of an 8 percent gain of the bluechip index since 2017.
The plans sent jitters through Central Europe, knocking shares in Erste and Raiffeisen, regional banks whose earnings may be curbed by the Romanian measures.
The government plans taxing banking assets, capping gas prices, enforcing a new turnover tax for energy firms and enabling Romanians to withdraw out of mandatory private pension funds after contributing for five years.
Bucharest's bluechip stock index fell 7.7 percent by 0825 GMT, with lenders Banca Transylvania and French Societe Generale unit BRD Group shedding 13 percent and 10.3 percent, respectively.
The fall makes a bad year look worse for Central European stock markets, where only Bucharest's share index had notched up visible gains.
So far this year Prague's benchmark shed 7 percent and Warsaw's almost 6 percent as funds flowed into the rallying dollar from risky emerging market assets.
Romania's measures deepened Prague's losses as well.
The Prague bourse's main index fell 2.4 percent to its lowest level since July 2017 on Wednesday, driven by an 8 percent fall in the shares of Erste, an Austrian bank active across the region, including Romania.
Erste shares fell 8 percent in Vienna, while Raiffeisen stock shed 4.8 percent.
In contrast with Bucharest and Prague, Budapest's and Warsaw's share indices were slightly positive.
While Romania's leu shed 0.2 percent against the euro to trade at 4.6559, the zloty firmed 0.1 percent and the forint was steady.
The mood was cautiously optimistic ahead of the Federal Reserve's meeting, amid speculation that a plunge in crude prices may make the Fed end its rate hikes.
Lower US rates would make emerging market assets look relatively more attractive, while the past months' decline in crude prices has helped inflation retreat in Central Europe, reducing pressure on central banks to tighten policy.
The crown briefly touched a 2-and-1/2-month high against the euro in early trade despite expectations that the Czech central bank could take a pause at its meeting on Thursday after four straight interest rate hikes.
It is seen increasing rates further next year.
The Hungarian central bank shifted to a more hawkish tone in its comments on Tuesday.
Polish figures released on Wednesday showing a slowdown in annual industrial output growth to 4.7 percent in November are unlikely to nudge the central bank towards tighter policy, indicating an economic slowdown, analysts said.