* Stock market down over 3 pct as plan rattles markets
* 10-year bond yield hit one-year high
* Societe Generale calls pension plan "blow to confidence"
WARSAW, Sept 5 Warsaw's main stock index
dropped by over 3 percent and bond prices fell on
Thursday as foreign investors worried that changes to the
pension system would undermine financial markets in the largest
of central Europe's emerging economies.
Poland said on Wednesday it would transfer 121 billion
zlotys in bonds held by state-guaranteed private pension funds
to the state and subsequently cancel them to curb the public
debt, thus reversing a reform from late 1990s.
The pension funds, which include international firms such as
ING, Aviva, Axa, Generali
and Allianz, would be allowed to keep their holdings
of stocks, worth 111 billion zlotys at the end of July.
But even some of those stocks would finally end up in state
coffers as the government plans to gradually shift the pension
assets to the state 10 years prior to retirement and make the
public pension vehicle ZUS the sole payer of pensions.
The government would also make further workers'
contributions to the funds voluntary, most likely significantly
cutting any fresh cash to the equity market.
The Warsaw blue chip index WIG20 dropped by 3.3
percent by 1236 GMT to a one-month low. The index lost about 5
percent since Tuesday close, much more that regional peers
already under pressure from a broad pullout of capital emerging
markets in recent weeks.
Banks suffered most, with shares in Poland's biggest lender
PKO BP down by almost 6 percent, while Unicredit's Pekao
tumbled over 4 percent.
The zloty fell 0.4 percent, bringing its total weakening
since the announcement of the plan on Wednesday to about 1
Societe Generale called the government's plan a "blow to
confidence", saying it might weaken the zloty even to 4.40 to
the euro, about 2.5 percent down from the current levels.
"The government's decision is disappointing for the market
and has undermined investor confidence," Societe said in a
"It will negatively affect liquidity on the bond market and
will make it even more dependent on foreign investors, whose
share on the debt market will rise in line with the cancellation
of domestic-held bonds."
Societe added that the equity market would likely continue
to suffer, because a significant share of current OFE members
would opt to leave the system.
Bond yields also rose. Yields on 10-year benchmark bonds
hit a one-year high of 4.87 on Thursday, but later
Poland managed to sell 5.7 billion zlotys in 2- and 5-year
bonds on Thursday, but 2-year yields rose by about 50 basis
points since last month's tender.
Moody's rating agency said Poland's pension system overhaul
was broadly neutral for the country's A2 credit rating, as the
improvement in debt ratios would be balanced out be a reduction
in market liquidity and could undermine hurt confidence.
(Reporting by Agnieszka Barteczko and Marcin Goettig; Additinal
reporting by Michal Janusz; editing by Patrick Graham)