by Geza Molnar

BUDAPEST, Oct 10, 2008 (AFP) - Eastern European foreign exchange markets were struck by panic on Friday in the midst of a global financial crisis, resulting in severe losses for local currencies.

"The weakening of the (Polish) zloty is linked to the general situation, the withdrawal of capital from emerging markets, but it is also due to rumours surrounding Hungary's OTP bank that have weakened the Hungarian currency," Mateusz Mokrogulski, chief analyst with Poland's BGZ bank, told AFP Friday.

In late July the zloty reached a record of 3.1814 against the euro. After slinding to 3.452 zlotys against the euro by Thursday evening, on Friday morning, it slid further to 3.638 zlotys and later rose to 3.5760 in trading around 1340 GMT.

The Polish currency has also weakened against the US dollar. While it briefly dropped below the two zlotys per dollar mark in mid-July, it weakened to 2.650 to the dollar.

The National Bank of Poland (NBP) issued a statement Friday reassuring investors that the zloty's decline was not rooted in the Polish economy.

"The weakening of the zloty that we are observing is not based on data on the fundamentals of the Polish economy. The situation of the Polish economy is stable and the banking sector is in good condition," NBP said in a statement.

The situation in Hungary is similar, where the local currency dropped to 272 forints for a euro by Friday morning to climb back to 262.78 forints per euro during the afternoon.

"There is no particular reason for the forint to fall. Its drastic weakening is caused by the global panic on financial markets," Takarekbank analyst Gergely Suppan told AFP.

"The Hungarian economy is still vulnerable to external events. Even if the current account deficit is improving, nevertheless the economy is still dependant on external financing. And now the tap is turned off," Suppan added.

"There is retirement of capital from the Hungarian market, a panic that is entirely unconnected with fundamentals," Matyas Kovacs, analyst of Raiffeisen Bank told AFP.

For the governor of the Hungarian central bank (MNB) Andras Simor, "there are no fundamental reasons for the weakening of the forint".

Should the current market situation persist, "we will think through what means to deploy," he added with reference to interest rate fixing.

A trader at the Budapest stock exchange refuted rumours on the bankrupcy of Hungarian bank OTP, saying the financial insitution enjoys "a massive support by the central bank."

"Of course there is a panic. If we have a two-day severe panic in the United States, the forint could weaken until 280 forints for a euro, but this would just be a temporary fall," he added.

The Romanian central bank (BNR), for its part, sold euros to buy the national money, the leu, after volatile morning trading, the Mediafax news agency reported on Friday.

The central bank set the exchange rate for the day at 3.76 leu to the euro from 3.82 on Thursday.The leu fell to the lowest point since December 2004 on Monday, to 3.94 to the euro.

Analysts said the national money had fallen in response to the international financial crisis and also because of concern that public spending might surge after parliament voted to raise teachers' pay by 50 percent.

Being fixed to the euro due to an austerity policy, the Bulgarian leva has been spared dramatic fluctuation.

In Slovakia and the Czech Republic the national currencies also avoided a major loss in value.

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