UPDATE 2-Serbian central bank sells euros as dinar weakens on election call

Mon Jan 27, 2014 11:51am EST

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BELGRADE Jan 27 (Reuters) - Serbia's central bank intervened to support its dinar currency on Monday, as the Balkan country heads for early parliamentary elections that could complicate loan talks with the IMF.

The bank sold 60 million euros ($82 million), it said in a statement, after the currency hit 116.15 to the euro, its lowest rate in more than a year.

Dealers linked the slide of the dinar to a decision on Sunday by the centre-right SNS party, the largest in the ruling coalition, to seek an election in March, a vote now likely to be called within days.

"This (the weakening of the dinar) is an initial reaction to the news about elections. I don't expect to see big oscillations during this campaign," said a dealer, who declined to be named.

"I don't expect the dinar to go below 116.5 to the euro."

The central bank has so far sold about 200 million euros this year to bolster the dinar. Serbia's currency reserves stood at 11.2 billion euros in December.

Serbia's president is expected to call the election for March 16 and the SNS party is expected to win the vote, giving it a stronger mandate for what it says will be tough, long-term reforms to cut public spending and strengthen the economy.

Markets have grown nervous about the pace of reform.

The snap poll might complicate negotiations with the International Monetary Fund on a new precautionary loan deal, set to begin on Feb. 26.

"All I can tell you for sure at this moment is that our negotiating mission will come on Feb. 26 as announced before," Daehaeng Kim, the Fund's resident representative for Serbia, told Reuters.

"When we made the announcement, we had already considered ...possible early elections." ($1 = 0.7307 euros) (Reporting by Aleksandar Vasovic and Ivana Sekularac; Editing by Matt Robinson/Ruth Pitchford)

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