Oct. 16 (Bloomberg) -- The European Central Bank said it will lend as much as 5 billion euros ($6.7 billion) to the Hungarian central bank to help revive the local credit market, which has been battered by the global financial crisis.

The agreement on ``repurchase transactions'' will support the Hungarian central bank's efforts to add euro liquidity in the domestic market, the ECB said in a statement today. Hungary isn't part of the 15-nation euro region.

Hungary's benchmark stock index and currency plunged yesterday on investor concern the eastern European country may be the next to be engulfed by the crisis that is roiling global markets. Some commercial banks this week suspended foreign-currency loans and demand on the government bond market has dried up.

``While the foreign exchange market can breathe, the domestic bond market is still in a coma, thus further significant measures are needed to reduce the financing needs of the economy,'' Janos Samu, an economist at Concorde Securities in Budapest, said in a note to clients.

The forint rose as much as 3.2 percent to 263.12 per euro and traded at 267.22 as of 9:11 a.m. in Budapest. The currency yesterday fell 7.1 percent to 271.84, the largest decline since the debut of Europe's common currency.

Shares Down

The benchmark BUX share index was down 5.82 percent to 13,585.99, after falling 11.9 percent yesterday. Asian and European indexes also plummeted today on concern the global economy will sink into a recession.

The global financial crisis is hitting more vulnerable emerging markets as investors withdraw from riskier assets in a flight to safety. Foreign currency borrowing by Hungarian consumers and businesses, along with slower growth and a wider budget deficit than elsewhere in eastern Europe, make the country a target, economists said.

The government has announced it will cut net bond sales by 200 billion forint ($984 million billion), only issuing notes to replace expiring debt. The central bank is planning a ``complex'' package to inject liquidity into the government bond market, Dow Jones Newswires quoted central bank Vice-President Julia Kiraly as saying yesterday.

The central bank has organized daily currency swap tenders since Oct. 13 to boost liquidity.

Asset Sales

Hungarian assets are being sold off even after government officials and analysts said that the banking system is stable and the economy has improved. The government has cut the budget deficit from a record 9.2 percent of gross domestic product in 2006 to a planned 3.4 percent this year and pledged to meet all euro-adoption terms next year.

The ECB is stepping up efforts to improve the flow of euros through the economies neighboring the 15-nation bloc. Yesterday, the Swiss National Bank said it will conduct seven-day currency swaps with the ECB after franc money market rates exceeded the SNB's target range for more than a week.

To contact the reporter on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net

Last Updated: October 16, 2008 04:11 EDT