The possibility of a Hungarian debt crisis pushed the euro to a four-year low against the dollar on Friday and reignited fears more Eastern European nations could reveal financial frailties.
The new Hungarian government spooked investors and knocked more than 2 percent off its currency, the forint, versus the euro, after a prime minister's spokesman said he supported the view the country had only a slim chance of avoiding the kind of debt crisis that plunged Greece into financial instability.
In Hungary the previous government falsified data. In Greece, they also falsified data. In Greece the moment of truth has arrived. Hungary is still before that, said Prime Minister Viktor Orban's spokesman Peter Szijjarto at a news conference.
The central bank rushed to reassure investors Hungary's budget was sustainable. It said it had an account surplus and that external financing capacity should remain positive in the next two years.
The bank also said Hungary's deficit could be 4.5 percent of GDP, while analysts see a deficit of 5 percent. Both are above the target of 3.8 percent.
Worries about Hungary have reignited market concern over the fiscal health of Eastern European nations, though many analysts believe the region's sound economic fundamentals would prevent a Greek-style debt crisis.
The market fears another Greece situation ... Fear is taking its toll, said Marc Chandler, analyst at Brown Brothers Harriman.
Eastern European stocks are down 8.5 percent this year, underperforming broader emerging equities, which have fallen 7.7 percent in the same period.
If you're a fund manager sitting in Greenwich, Connecticut, and you see Europe going down the pan, you get rid of everything, said Capital Economics economist Neal Shearing.
The euro fell as low as $1.1972, according to EBS trading platform. Selling pressure started after a disappointing U.S. jobs report. The single currency hit its lowest against the dollar in more than four years after comments by French Prime Minister Francois Fillon on exchange rates.
He said he was not concerned by the current level of the euro to the dollar and saw only good news in the parity between the currencies [ID:nLDE6531E6].
Later, the remarks were clarified, saying his reference to parity was about the general evolution of the exchange rate between the euro and the dollar.
Hungary's news and the U.S. jobs report hurt major U.S. stock indexes. The Dow Jones Industrial Average, S&P 500 Index and Nasdaq Composite Index, ended the day down more than 3 percent. The S&P 500 closed below the May 6 flash crash intraday low of 1,065.79, and at its lowest level since February 8.
For the week, the Dow fell 2 percent, while the S&P fell 2.3 percent and the Nasdaq 1.7 percent.
JOBS DATA BLUES
U.S. government data released Friday showed the economy added fewer jobs in May than expected, with many of them temporary hirings for the U.S. Census, which the government conducts once a decade.
Nonfarm payrolls rose by about 431,000 jobs on the surge in government hiring, but private employment, which measures the labor market's strength, rose 41,000, a number that analysts said was disappointing.
Still, they said it was unlikely that the economy would slip into recession. Companies are spread too thin on labor and cannot increase working hours indefinitely to maintain output, they said.
We do not yet have the makings of a double-dip, and we still believe that private sector job creation will gradually improve over the rest of the year, said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.
It was the fifth monthly increase in employment. The report also showed that the unemployment rate dropped to 9.7 percent from 9.9 percent in April, although the decrease reflected workers leaving the job market.
(Reporting by Krisztina Than in Budapest; Sujata Rao and Sebastian Tong in London; Leah Schnurr, Nick Olivari and Vivianne Rodrigues in New York and Crispian Balmer and Sophie Louet in Paris. Writing by Robert MacMillan; Editing by Andrew Hay).