CEE MARKETS-Leu sinks to all-time low as Romania's political impasse adds to financial pressure

By Luiza Ilie and Karol Badohal

BUCHAREST/WARSAW, Oct 1 (Reuters) - The Romanian leu hit an all-time low against the euro on Thursday, as a political stalemate dimmed prospects of Bucharest moving to cut its deficit even as turbulent global markets added further pressure on public finances.

Prime Minister-designate Siegfried Muresan lost a vote of confidence in parliament this week, extending a crisis that has already sent Romania's currency to record lows and pushed the country's local 10-year bond yields up some 60-80 basis points to one-year highs in the past two weeks.

The leu was 1.30% softer against the euro at 5.34 by 1402 GMT, set for its biggest daily drop since the current political crisis started brewing in April. It touched an all-time low of 5.39 earlier in the session.

A Romanian central bank spokesperson "did not deny" intervention by the bank.

"Romanian bonds and the currency are facing pressures amid the protracted political deadlock, as another attempt to form a government failed," said Jakub Kratky, a financial analyst with Generali Investments CEE.

"While the central bank will likely keep an eye on the leu and will prevent excessive volatility and won't rush with a premature policy easing, the overall sentiment may be dented by growing rating risks, as rating agencies may start to lose patience, putting the IG (investment grade) rating at risk," Kratky added.

S&P Global is due to review Romania's credit rating on Friday. The country sits at the lowest rung of investment grade, with a negative outlook.

CENTRAL BANK 'DOES NOT DENY' INTERVENTION

Romania's central bank has a managed float and has defended the currency in the past.

"During turbulent periods, the bank attempts to keep market fluctuations in exchange rates and interest rates within certain limits, performing a balancing act between the exchange rate and interest rate levels," the bank's spokesperson said, when asked by Reuters about the leu weakening.

"These decisions have consequences — liquidity withdrawals create financing difficulties for the economy and the budget. All these factors are taken into account when operating in the market."

At the end of September, National Bank of Romania's foreign exchange reserves stood at €60.060 billion, down from €64.865 billion in August.

With turbulence in global markets and the ongoing political stalemate at home, Romania's debt managers refrained from selling any July 2031 bonds at a Thursday tender, central bank data showed, after it had planned to sell 500 million lei ($106.95 million) of the paper.

Romania last tendered the bonds in September at an average yield of 6.77%; it previously rejecting bids at tenders in March and April after the Middle East conflict started.