By Sujata Rao
LONDON Fri Jan 16, 2015 5:29am EST
LONDON Jan 16 (Reuters) - The Polish zloty and stocks extended losses on Friday after the Swiss franc's surge against central European currencies fanned financial stability fears, though Hungarian assets stabilised.
More broadly, emerging equities were set to snap a four-week winning streak, with the currency market turbulence preventing the sector from benefiting from the fall in U.S. Treasury yields.
Switzerland's decision to abandon its exchange rate cap with the euro and to cut interest rates sent the franc surging around 15 percent on Thursday, spooking central European markets because of a relatively high proportion of franc-denominated debt across the region that could threaten banks.
The zloty fell 0.3 percent against the euro adding to the previous session's 1 percent-plus loss while Warsaw stocks lost 0.6 percent after falling 3 percent on Wednesday for their biggest one-day loss in 10 months.
The zloty gained 1.6 percent against the franc however as the Swiss currency pulled back from its highs. The forint rose 0.5 percent to the euro and stocks of banks such as OTP recovered from steep falls.
"In Hungary they introduced a scheme to convert household liabilities and banks presumedly hedged their positions at the end of last year, while on the case of Poland we do not know of any such intervention to reduce the imbalance," said Cristian Maggio, a strategist at TD Securities.
He said further franc appreciation would not be "a disaster for Poland, but it is a net negative."
While franc mortgages amount to 7.5 percent of Poland's gross domestic product, the impact of exchange rate swings on mortgage payers would be mitigated by the fall in Swiss interest rates, JPMorgan pointed out.
The Czech crown, seen as a regional safe-haven, benefited from the turmoil, rising 0.4 percent.
The rouble and Russian stocks weakened further as oil stayed under $50 a barrel and markets braced for a credit ratings downgrade to "junk". Ukrainian bonds continued to weaken and credit default swaps rose 81 basis points to new 5-1/2 year highs according to Markit data, as violence escalated in the east of the country.
Chinese stocks posted their 10th straight week of gains due to bets for stimulus. Surprise rate cuts in India and Peru are raising expectation other emerging markets will follow, pushing yields on the GBI-EM local debt index below 6.19 percent, the lowest since mid-2013.
For GRAPHIC on emerging market FX performance 2015, see link.reuters.com/jus35t
For GRAPHIC on MSCI emerging index performance 2015, see link.reuters.com/weh36s
For GRAPHIC on MSCI emerging Europe performance 2015, see link.reuters.com/jun28s
For GRAPHIC on MSCI frontier index performance 2015, see link.reuters.com/zyh97s
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see ) (Additional reporting by Karin Strohecker; Editing by Dominic Evans)
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