UPDATE 1 - Romanian Leu Slumps vs Euro on Domestic, External Factors

The leu slumped to 3.7310/7700 per euro by 1030 GMT, one dealer told SeeNews, adding that the currency started depreciating sharply in morning trade after president Basescu endorsed a law for a 50% hike in teachers’ wages.

Basescu endorsed the law on Friday after the country's Constitutional Court ruled it legal earlier this month. The Romanian government had asked the court to rule on the legality of the law, previously adopted by parliament. Finance and Economy Minister Varujan Vosganian has said such a pay increase would lead to a budget gap equivalent to 7.0% of gross domestic product (GDP) next year.

The dealer said the Romanian foreign exchange market was following an euro-appreciating trend on Friday due to several factors, including the appreciation of the U.S dollar against the euro on international markets after officials of the Central European Bank said that rate cuts in the euro-zone are desirable.

The leu also eased due to increased liquidity on the market as the deadline for commercial banks to lodge minimum reserves with the central bank, BNR, has just passed, she said.

The leu's depreciation follows recent gains in the Romanian currency that triggered expectations for profit-taking. At the same time, Friday is usually a day for closing positions, the dealer added.

Romania's central bank, BNR, set its reference exchange rate used for statistical purposes at 3.6875 lei per euro on Friday, compared to 3.6140 lei per euro on Thursday. For the U.S. dollar, the reference exchange rate was set at 2.9392 lei versus Thursday’s 2.8117 lei.

Interest rates on overnight leu deposits were set at an average of 14.00%/17.80% on Friday from 14.00%/27.81% on Thursday.

Turnover on the interbank leu deposit market rose to 1.806 billion lei on Thursday from 1.165 billion lei on Wednesday. The BNR will issue Friday 's figures on Monday.

Following are Friday's average bid and ask quotes of commercial banks on Romania's interbank market. They were calculated at 11 a.m. (0800 GMT) by the BNR, based on data provided by 10 commercial banks (in pct):