KIEV, Sept. 18 – Ukraine’s national currency, the hryvnia, lost value rapidly against the U.S. dollar over the past two days, wiping out all gains it had achieved at an unusual overnight appreciation four months ago.

The hryvnia closed at 5.03 hryvnias against the dollar in trading between commercial banks Thursday, compared with 4.93/dollar on Wednesday and 4.80/dollar on Tuesday, dealers said.

The hryvnia’s rapid decline comes amid a drastic plunge in Ukrainian stock market valuations with the PFTS, the country’s main stock index, falling more than 70% since the beginning of the year.

The National Bank of Ukraine, however, failed to react to the decline, leaving the hryvnia at 4.85 to the dollar on Thursday in the official exchange rate, which is used by businesses in settlements with the government.

The NBU pledged to defend the hryvnia within the band of 4.65 and 5.05 to the dollar through the end of 2008. On Monday the NBU widened the band to 4.60 and 5.10 hryvnias to the dollar in 2009.

The NBU did not intervene at the trading Wednesday and Thursday, but any further depreciation of the hryvnia will show whether the bank is willing to spend its foreign exchange reserves to support the band it had earlier pledged to defend.

The NBU’s reserves rose to $38 billion as of early September, up 17.3% from early January, according to the bank.

The developments underscore high volatility on both, forex and stock markets, reflecting major stress that has been sweeping the Russian stock markets and the depreciation of the ruble against the dollar.

The hryvnia’s decline accelerated upon release of data showing that Ukraine’s foreign trade deficit has increased sharply, responding to high natural gas prices, while the government had predicted the deficit would keep rising over next three years.

Ukraine recorded $11.05 billion in deficit while trading with goods in January through July, a stunning increase from $5.11 billion reported in the same period a year ago, the committee reported.

Ukraine recorded $11.4 billion in foreign trade deficit in 2007, up from $6.7 billion in 2006, according to the committee.

But the government said Tuesday the deficit will continue to increase at high pace during the next three years, rising to $25.2 billion in 2009, $31 billion in 2010 and $34.2 billion in 2011.

The released figures suggest that demand for hard currency will be steadily growing in Ukraine as businesses will need more hard currency to pay for the increasing imports.

Ukraine’s imports rose 60% on the year to $51.2 billion in January-July, while exports had increased 46.6% to $40.1 billion in the same period, according to the committee.

The trade deficit has been so far fueled by high gas prices charged by Russia and by robust goods imports that had accelerated since the controversial 4%-appreciation of the hryvnia against the dollar on May 21.

The NBU, which had been keeping the hryvnia at 5.05 to the dollar since April 20, 2005, suddenly let the hryvnia to gain to 4.85 to the dollar overnight, triggering major criticism within the business community.

Ukraine’s steelmakers, the country’s biggest exporters, complained the rapid appreciation would slow exports and boost imports.

But the government of Prime Minister Yulia Tymoshenko pressed for the appreciation in hopes of slowing down rampant inflation this year. (tl/ez)