Ukraine markets hold breath after tight vote results

KIEV (Reuters) - Ukrainian markets paused to reflect on opposition leader Viktor Yanukovich's narrow lead in Sunday's presidential election against Prime Minister Yulia Tymoshenko -- his arch rival who has refused to concede defeat.

The hryvnia currency traded sideways, there was no activity on Kiev's tiny stock market, the price of insuring against a Ukrainian default remained unchanged and yields on sovereign bonds edged slower, indicating slightly more positive sentiment.

"The day began as usual and we don't expect any big moves at the moment. The market will not react as long as there are no loud statements, scandals, which could lead to the hryvnia weakening," said one currency dealer in a large Ukrainian bank.

Almost complete official results show Yanukovich leading Tymoshenko by just 2 percentage points, although one Central Election Commission says his advantage will only now grow as the last remaining votes in his stronghold are counted.

The hryvnia currency traded at levels on Monday very little changed since last week at 8.06/8.08 to the dollar by 1115 GMT, which is at almost half of its value from a 2008 peak reached before the country feel deep into an economic crisis.

No trades had taken place on Ukraine's fledgling and illiquid PFTS stock market, according to Reuters data.

Tymoshenko said last week she would contest the result of the election or bring her supporters out on the streets, should there be any evidence of fraud by Yanukovich. The two sides have accused each other of preparing for fraud for week.

Tymoshenko, however, has been tight-lipped on Monday. She is due to hold a news conference at 5.00 pm (1500 GMT).

"Of course Tymoshenko will not just simply leave," said another dealer. "I doubt that the results will be recounted, but there will be attempts to contest them. Who knows what they will do next?"

HOLDING BREATH

Foreign investors in Ukrainian bonds and credit default swaps to insure against default were also holding their breath, though yields edged lower to indicate better sentiment toward Ukraine.

Ukraine's 2013 global bond rose 0.625 point at 91.125 to yield 10.888 percent, a 2.4 basis point fall. The 2016 global bond rose 0.5 at 81.5 to give a yield of 10.453 percent -- a fall of 1.1 basis points.

It costs the same, albeit a lot, to insure against Ukrainian default on Monday as on Friday at 16 percent upfront of a $10 million loan including $0.5 million annual running costs, according to prices quoted by Markit.

Ukraine's portion of the JPMorgan EMBI+ emerging sovereign bond index tightened by 3 basis points to 828 bps over U.S. Treasuries.

"Uncertainty over the likely course of action and the formation of the next government is likely to feed through into wider CDS spreads, although there is still significant room to tighten on a favorable post election outcome," Unicredit analyst Dmitry Gourov said in a note.

Ukraine's economy fell deep into recession at the end of 2008 as steel exports plunged, industrial output virtually ground to a halt and the currency dropped fast against the dollar. The economy contracted by 15 percent last year.

The International Monetary Fund agreed to a $16.4 billion bailout programme at the end of 2008, but then suspended it a year later over broken promises to control budget spending.

"The market is less concerned with who won the election, but that the result was decisive enough to prevent legal challenges, and early parliamentary elections which would have just delayed the more important job of getting the economy back on track," said Tim Ash, head of central and east European research at RBS.

(Additional reporting by Natalya Zinets in Kiev and Carolyn Cohn in London; Editing by Toby Chopra)