Trade in Ukraine`s troubled hvrynia looked to be drying up on Friday with banks reporting no demand after the currency slumped in value and the central bank tightened capital controls amid a deepening economic crisis, Reuters said.

After hitting historic lows in consecutive sessions, the hryvnia recovered on Friday, supported by central bank auctions of dollars, a spike in the overnight refinancing rates and stability in the neighbouring Russian rouble.

The Reuters conversational dealing system quote for the currency in local trade showed the hryvnia up 10.6 percent at 8.05 to the dollar but demand was almost non-existent.

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At 1500 GMT, the system had not recorded any new prices since 1216 GMT -- although traders said occasional deals were being done.

The unit has lost roughly half its value to the dollar since June, much of it in the last few days when it fell to a record low beyond 9.5.

Liquidity in general across central and eastern European currencies has fallen sharply, with investors seeing the region as particularly exposed to the global financial crisis.

But after the collapse of Iceland, Ukraine is seen as the most likely next casualty despite an International Monetary Fund bailout.

Analysts say the plight of Ukraine -- suffering slumping steel prices, local banking problems and now a threatened cutting of Russian gas supply in the New Year -- is not as severe as Iceland, which had banking debts several times the size of its gross domestic product.

But the demise in trade in its currency does bear some resemblance to the fate suffered by the Icelandic crown in September, when it likewise became practically impossible to exchange in international markets.

"It is not as bad as Iceland but it is close," said Lars Christensen, head of emerging markets research at Danske Bank in Copenhagen.

"No one wants to take any risks on the currency. But overall the situation with liquidity across Central and Eastern Europe is very, very bad."

Ukraine had been intervening to hold its currency higher but after haemorrhaging reserves and getting a $16.5 billion IMF deal, it has let the unit slide.

"The IMF plan called for a greater flexibility in the exchange rate and in a sense they are going back to that," said emerging markets currency strategist Elizabeth Gruie at BNP Paribas.

International banks cannot trade the hrvynia except in the local market through local subsidiaries, and trade in the international non-deliverable forward (NDF) market -- in which they can trade -- looked to have dried up as well.

There were no forward trades from international banks showing on the Reuters system on Friday.

"For the last three days, everyone has been looking for the right hand side (the sell side)," said a trader at a bank in London, adding that the occasional trade was going through but only driven by the needs of clients generally keen to ditch their positions.

Reuters