Hungarian forint leads FX lower on Greek worries

BUCHAREST (Reuters) - The Hungarian forint fell to a four-month low against the euro on Wednesday, leading losses among emerging European currencies as fears flared up again of Greece crashing out of the euro, while the Serbian dinar was at a record low after an election.

Hungarian shares also led losses among the region's stock markets, with a 2 percent fall, closely followed by shares in Warsaw.

Currencies have tumbled against the euro since an inconclusive Greek election in early May that threatened the country's aid deal and its future in the euro zone, emerging Europe's main trade and banking partner.

Adding to the sense of risk aversion on Wednesday, differences of opinion between France and Germany over how to tackle the debt crisis are expected to be laid bare at an informal EU summit later on Wednesday, traders said.

Hungary's forint is most vulnerable to shifts in investor sentiment in the region because of Budapest's high foreign debt levels and its slow progress towards talks on receiving aid.

It was the hardest hit on Wednesday as the euro neared a 21-month low, driven by comments from former Greek Prime Minister Lucas Papademos who said there was a real risk of the country leaving the euro zone unless it sticks to painful austerity.

"I guess the forint is finally beginning to pay the price for the lack of clarity on the IMF/EC financing front ... with the government playing a little too hard to get," said Timothy Ash at RBS.

"Interesting given generally underweight positions, and the assumption of possible good news on the horizon (revisions to central bank law), investors have been unwilling to take on the HUF. Maybe this is changing, given the weak regional/global backdrop."

On Tuesday, Hungary said it hoped the EU would decide in June that the country has done enough to cut its budget deficit and that this will lead to talks on a loan deal with the International Monetary Fund.

By 0945 GMT, the forint was down 1.7 percent versus the euro at 302.6, trading above the 300 line last breached in January. Hungarian bond yields rose 6-10 basis points in thin trade.

CZECH TAXES

The Czech crown fell 1 percent to the euro. Cabinet sources said on Wednesday that the centre-right government had approved a budget consolidation package, including tax hikes, which traders said would undermine both economic growth and the crown.

The Czech government sold more than 7 billion crowns of bonds on Wednesday, with demand for a variable-rate issue maturing in 2023 climbing, while that for a fixed-rate issue maturing in 2018 edged down.

Elsewhere in the region, the Romanian leu was bid 0.2 percent lower at 4.459, close to an all-time low hit earlier this month after a government collapse.

The Polish zloty lost 0.6 percent to the euro, while bond yields rose 3-4 basis points.

While the unit shrugged off Tuesday data that showed surprisingly high core inflation data, some dealers are now saying the figure could ultimately weigh on investor sentiment.

"This is a very high reading," said one fixed income dealer in Warsaw. "This makes it difficult to rule out another rate hike. Bonds can be under pressure then. But for now market sentiment is still dominated by Greece."

In Serbia, the dinar extended losses for the third consecutive day, trading 0.8 percent lower on the day at an all-time low of 115.42, as political uncertainty after a presidential election added to the euro area crisis.

(Reporting by Reuters bureaux; Writing by Luiza Ilie; Editing by Hugh Lawson)