* EU rejection of wider CEE bailout hits currencies
* Romania says in preliminary talks with IMF on deal
* Morgan Stanley cuts forecasts on CEE banks, stocks fall
* Latvian PM-designate says 2009 fight to avoid bankruptcy
* EU's Almunia says more CEE help may be needed
(Changes prices, adds Romania talks with IMF)
By Jason Hovet
PRAGUE, March 2 (Reuters) - Emerging European currencies plunged on Monday, led by an almost 2.5 percent drop in the Hungarian forint, after a summit of European Union leaders rejected a mass bailout plan for the region.
Romania looked to be preparing to join a list of countries rescued by the International Monetary Fund after a source said Bucharest had started preliminary talks on a potential deal to help finance its vast trade deficit.
That list already includes Hungary and Latvia, the latter of whose prime minister-designate Valdis Dombrovskis said 2009 would be a fight to avoid bankruptcy.
The events followed EU leaders' dismissal of a Hungarian call for a 180-billion euro plan, which dashed hopes of a swift move toward a broader deal to underpin the bloc's eastern wing and steady nerves that have hit even its better-off economies.
Central Europe's currency, debt and stock markets have been battered by concerns about weakening growth and banks and their heavy reliance on external funding -- despite some policymakers' efforts to distance themselves from weaker neighbours.
The Poles and Czechs have watched a euro zone recession and the credit crunch slam the brakes on their economies but contend they are still far better off than Hungary and Latvia.
European Monetary Affairs Commissioner Joaquin Almunia said on Monday the EU was doing a huge amount to support its eastern members, but said more may be needed.
He said Monday's market falls were not a result of weekend decisions. Analysts said the lack of a unified response had hurt markets and that investors would not differentiate between states until the region secures a broader aid package to underpin confidence.
"Markets, especially currencies, will continue to push for a strong policy response and so we must wait and see what next steps are taken at an EU level," Nomura emerging markets economist Peter Attard Montalto said in a note.
SLIDING
EU leaders also held out the prospect on Sunday of faster euro zone entry for single currency aspirants, but analysts said that offered little solace to investors who fear the region's woes could also spill over to the West.
The most immediate trouble is a collapse in industry due to consumers snapping their purses shut in richer Western EU states. PMI purchasing managers' data showed the Czech and Polish manufacturing sectors ticking up slightly in February but still in a significant contraction.
Polish gross domestic product data also showed the economy grew 2.9 percent year-on-year in the fourth quarter, better than expected although analysts said the slowdown would deepen in the region's largest economy.
"We are still very much at the stage where every month forecasts for 2009 are being revised and the 2010 outlook becomes bleaker," said ING analyst Agata Urbanska.
The sliding currencies also threaten hundreds of thousands who borrowed in euros or Swiss francs and now face skyrocketing loan payments, while in Poland firms are struggling under the weight of currency options contracts made last year when the zloty was around 50 percent stronger than now.
Analysts also fear countries like Latvia and Bulgaria that operate currency boards may have to devalue, which could push many borrowers towards loan default and undermine banking.
EMERGING MARKET WORRIES
Investors also cut riskier emerging market positions as financial sector worries were fuelled by a huge rights issue from HSBC and news the U.S. government was set throw a fresh lifeline to troubled insurer AIG.
The forint sank to 306.6 per euro by 1539 GMT, down 2.3 percent from Friday's closing level. It was still off its all-time low of 310 but negative pressure built when agency Fitch cut Hungary's ratings outlook to negative.
The Polish zloty lost 1.8 percent to 4.751 per euro and the Czech crown shed 0.4 percent to bid at 28.217 per euro.
The weaker currencies hurt government bonds, with yields continuing to tick up.
Romania's leu outperformed on speculation the central bank may intervene, dealers said, and a 92 million euro drop in the country's foreign currency reserves in February, signalled it had done just that last month.
Stocks weakened, mirroring losses in Western Europe due to the financial sector fears. Prague lost 1.6 percent while Warsaw nudged lower. Banks came under pressure after Morgan Stanley cut several price targets, saying it remained cautious on the region.
The zloty has shed 13.4 percent this year and a third of its value versus the euro since hitting record highs last summer. The forint has lost 14.2 percent in 2009, while the crown is off 5.7 percent and the leu 6.7 percent. ----------------------MARKET SNAPSHOT------------------------- Currency Latest Previous Local Local
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today in 2009 Czech crown 28.217 28.101 -0.41% -5.19% Polish zloty 4.759 4.672 -1.83% -13.53% Hungarian forint 306.61 299.52 -2.31% -14.04% Croatian kuna 7.43 7.435 +0.07% -0.87% Romanian leu 4.304 4.296 -0.19% -6.73% Serbian dinar 93.57 93.533 -0.04% -4.37% Yield Spreads Czech treasury bonds 2-yr T-bond CZ2YT=RR +33 basis points to 252bps over bmk* 4-yr T-bond CZ4YT=RR -3 basis points to +249bps over bmk* 8-yr T-bond CZ8YT=RR +11 basis points to +306bps over bmk* Polish treasury bonds 2-yr T-bond PL2YT=RR +13 basis points to +452bps over bmk* 5-yr T-bond PL5YT=RR +11 basis points to +385bps over bmk* 10-yr T-bond PL10YT=RR +9 basis points to +324bps over bmk* Hungarian treasury bonds 3-yr T-bond HU3YT=RR +23 basis points to +1173bps over bmk* 5-yr T-bond HU5YT=RR +33 basis points to +1036bps over bmk* 10-yr T-bond HU10YT=RR +39 basis points to +845bps over bmk* *Benchmark is German bond equivalent. All data taken from Reuters at 1739 CET. Currency percent change calculated from the daily domestic close at 1600 GMT. (Reporting by Reuters bureaus, writing by Mike Winfrey and Patrick Graham; Editing by Andy Bruce)