* Ukraine's hryvnia down 4 percent vs dollar on day
* Russian rouble at five-year dollar low
By Sujata Rao
LONDON, Feb 26 Ukraine's hryvnia tumbled 4
percent on Wednesday to 10 per dollar as political uncertainty
mounted, with ripples spreading to Russia where the rouble fell
to five-year lows and bank shares took a hit.
Broader emerging assets also remain under heavy pressure
even though a smaller fall in the Chinese yuan than in previous
sessions provided some relief.
Ukraine remains without a settled government several days
after President Viktor Yanukovich was overthrown, raising fears
the country will fail to secure outside financial support in
time to repay debts as its own hard currency reserves dwindle.
"The whole political picture in Ukraine has become even more
blurred than before," said Simon Quijano-Evans, head of emerging
markets research at Commerzbank in London.
"As long as there is no clear resolution on who is in charge
and as long as there is no unity among global policymakers on
resolving the issues, it is impossible to say what happens to
Reflecting the fears, Ukraine's five-year credit default
swaps jumped 76 basis points, Markit data showed.
Traders in Kiev said the central bank was absent from the
hryvnia market, allowing the national currency to fall to a
fresh record low. Year-to-date losses for the once tightly
controlled unit are almost 20 percent against the dollar, more
than any other major emerging currency in 2014.
Bonds are also falling, with Ukraine's 2017 dollar issue
now having erased over half the gains made in a
rally on Monday that followed Yanukovich's exit.
"The larger the devaluation, the higher the debt/GDP ratio,
bigger hit to the banking sector, and hence higher bank bailout
costs," Standard Bank analyst Tim Ash said in a note.
RUSSIA FEELING THE HEAT
The moves are weighing heavily on neighbouring Russia's
rouble, which fell half a percent to the dollar and to a record
low versus the euro .
Russia holds $3 billion worth of Ukrainian debt issued last
December which could end up in default if certain bond covenants
are breached. [ID: nIFRh2jP1]
"These Ukraine concerns (are weighing) on the rouble," said
Maxim Korovin, fixed income analyst at VTB Capital in Moscow,
adding that investors may be betting against the rouble as a way
to reduce exposure to the region and so indirectly hedge their
"If you short the rouble and the rouble is weakening that
will offset your loss," he said.
Shares in Russian banks also fell, with state-controlled VTB
and Sberbank down around 1 percent, after
ratings agency Fitch warned on Tuesday that banks which lent to
Ukraine faced big risks. Russian lenders' exposure was estimated
by President Vladimir Putin last year at around $28 billion.
Shares in Hungary's OTP bank, which has operations in
Ukraine, fell 0.8 percent while the underlying
Budapest exchange was flat.
Elsewhere, investor focus remained on the Chinese yuan,
which has fallen more than 1.5 percent since mid-January, and
weakened below the central bank's official daily fixing for a
second day in a row.
Late in the session, it clawed back some of the declines.
Asian currencies gained after the yuan's smaller fall, led
by the Korean won while MSCI's emerging equity index rose
0.4 percent after two days of losses as Chinese shares also
snapped a four-day losing streak .
"Any fears that the (U.S. Federal Reserve) is going to
tighten aggressively has been replaced by what's happening in
China," said Neil Shearing, head of emerging markets research at
Capital Economics in London.
While some view the Chinese moves as a tacit monetary policy
loosening, others reckon they are aimed at preparing the market
for more reform and also at stamping out speculative foreign
positions in the currency.
The Brazilian real was flat against the dollar before a
central bank meeting that could deliver a 50 bps rate rise.
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For TURKISH market report, see
For RUSSIAN market report, see )