March 2 (Bloomberg) -- Hungary’s forint tumbled the most in nine weeks after European Union leaders rejected pleas for a region-wide aid package and Fitch Ratings cut the country’s rating to negative.

The forint dropped as much as 2.7 percent, the biggest decline since Dec. 26, to 307.52 per euro at 6:08 p.m. in Budapest, near the record low of 309.71 on Feb. 17. The Polish zloty weakened 2.5 percent to 4.7734 versus the euro and the Czech koruna depreciated 0.3 percent. Eastern European stocks dropped to the lowest in 5 1/2 years.

Hungary, which was allocated $15.7 billion from the International Monetary Fund last year, may have its BBB credit rating cut by Fitch because slowing growth and the plunge in the forint has prevented the bailout from improving financial stability, the company said today. EU leaders yesterday vetoed a Hungarian appeal for 180 billion euros ($228 billion) of loans for eastern European countries, bowing to German concerns that it would put too much pressure on budget deficits.

“The failure of yesterday’s summit to provide any fresh thinking about Eastern Europe’s crisis means that investors are faced this week with the prospect of ‘more of the same’,” David Lubin, chief emerging-market economist at Citigroup Inc. in London.

The forint has dropped 22 percent versus the euro in the past six months and 29 percent against the Swiss franc, increasing the “burden for holders of foreign-currency debt, further depressing the economic growth outlook and increasing the likelihood of stress in the financial system,” Fitch said today.

Foreign-Currency Loans

About 70 percent of Hungarian loans are denominated in a foreign currency, according to Fitch.

Investors are exiting eastern European assets on concern that companies and consumers will be unable to repay foreign- currency debt as plunging exchange rates increase borrowing costs and demand for exports drops. Exports comprise more than 60 percent of gross domestic product in Hungary, making it more “vulnerable” to the global financial crisis, Beat Siegenthaler, chief emerging-markets strategist in London for TD Securities, wrote in research note today.

“Ultimately some sort of international help will be required to reverse the recent trend on the currency market,” he said.

The South African rand dropped the most in more than two weeks, depreciating 3.8 percent to 10.4979 per dollar, the Turkish lira lost 1.7 percent and Romania’s leu slipped 0.1 percent. Eastern Europe has six of the 10 worst-performing currencies against the dollar this year.

No Special Treatment

European Commission President Jose Barroso said eastern Europe doesn’t need special treatment as it can draw on 15.4 billion euros in the EU’s balance-of-payments assistance fund. The countries are also eligible for 7 billion euros of accelerated infrastructure subsidies, he said.

“We are one union, not two unions or three unions,” Barroso said. Poland and the Czech Republic were among countries that didn’t support Hungary’s plan, saying their economies are sound and don’t need support.

The World Bank, the European Bank for Reconstruction and Development and the European Investment Bank last week announced loans of up to 24.5 billion euros for eastern European banks and businesses. Ukraine, Belarus, Latvia and Serbia have also been granted IMF bailouts totaling more than $20 billion to stave off defaults and prop up ailing banks.

The MSCI EM Eastern Europe Index dropped 4 percent to 88.3, the lowest since August 2003. The MSCI EM Eastern Europe Financials Index of 13 stocks, fell as much as 5.9 percent to the lowest in more than six years, extending its 12-month decline to 82 percent. Global emerging-market stocks headed for the lowest close in 15 weeks.

Markets are “taking the lack of news from the EU as an indication that it may not have grasped the magnitude of the problem yet,” said Christian Keller, a foreign- exchange strategist in London at Barclays Capital.

To contact the reporter on this story: Laura Cochrane in London at lcochrane3@bloomberg.netYon Pulkrabek in Prague on ypulkrabek@bloomberg.net

Last Updated: March 2, 2009 12:15 EST