* FX reverse gains but hold off lows
* Leu outshines as dealers cite cbank in market
* Rate outlooks point to zloty outperformance
(Adds details, fixed income)
PRAGUE, Oct 30 (Reuters) - Romania's leu bucked a fall in
Central Europe's currencies on Friday, with dealers citing
central bank intervention, while investors' eyes turned to
decisions on Czech and Romanian interest rates next week.
The region had eked out gains in the previous session on the
back of a bounce in global optimism due to data showing the U.S.
economy may have emerged from recession.
But the risk rally stretching back to March still looks more
unsteady than previously, and there are also local worries over
soaring budget gaps and, in some countries, possible further
falls in interest rate premiums for holding currencies.
Strategists have said the region's rate stories could start
to set currencies apart, staying more bullish on the Polish
zloty after its central bank shifted towards a more neutral
stance on rates, while chances for easing still exist in other
markets like Romania and the Czech Republic.
"Carry compression in the region will continue... If
investors are looking for carry, central and eastern Europe is
clearly not the region to look at," said Murat Toprak,
strategist at Societe Generale in London.
But he said a reversal of the appreciation trend was not
likely in the region, although price moves could remain erratic
and the zloty was the top pick especially as it has lagged the
region in recouping losses over the past year.
The leu <EURRON=> outshone peers with a 0.3 percent rise,
firming below 4.30 per euro as dealers suspected the central
bank sold euros to cool the unit's slide.
"There's only one explanation, the central bank," one dealer
said. "It was largely expected, though I think it triggered some
stop losses on the way to below 4.29." []
Prolonged political wrangling to form a new government
coupled with intervention fear has paralysed the currency this
month, although it was jolted this week in a regional sell-off.
Markets also expect Romania's central bank to lop another 50
basis points off interest rates when it meets on Tuesday.
POLISH BONDS UP
The Polish zloty <EURPLN=>, which is still down 15 percent
from a year ago, dipped to 4.231 to the euro by 0854 GMT.
Bond yields, however, fell around 5 basis points following a
strong switch tender on Thursday, helped by a central bank
projection which showed inflation easing steadily and weakened
the case for rises in interest rates next year. []
Yields fall as prices rise.
"It seems interest rate hikes may be either delayed in time
or even there will be no hikes," said chief FI dealer at Pekao
bank in Warsaw Maciej Slomka.
"Even though inflation is still a risk, it is clear that the
lowering of the inflation path (by the central bank) positively
impacted bonds."
Elsewhere, the Hungarian forint <EURHUF=> and Czech crown
<EURCZK=> edged 0.3 percent and 0.7 percent lower.
Stock markets rose after sharp losses earlier this week,
with Prague <> up 2 percent.
Data has been mixed this week with Hungary's unemployment
falling to a 13-year low, while Friday figures showed Czech
industry's drop came in line with forecasts from analysts, who
say the sector is nearing a breakeven. []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.466 26.277 -0.71% +1.08%
Polish zloty <EURPLN=> 4.231 4.227 -0.09% -2.74%
Hungarian forint <EURHUF=> 272.42 271.55 -0.32% -3.26%
Croatian kuna <EURHRK=> 7.242 7.225 -0.23% +1.7%
Romanian leu <EURRON=> 4.295 4.306 +0.26% -6.53%
Serbian dinar <EURRSD=> 93.32 93.34 +0.02% -4.11%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +14 basis points to 110bps over bmk*
7-yr T-bond CZ7YT=RR +18 basis points to +116bps over bmk*
10-yr T-bond CZ10YT=RR +6 basis points to +97bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +9 basis points to +364bps over bmk*
5-yr T-bond PL5YT=RR +11 basis points to +322bps over bmk*
10-yr T-bond PL10YT=RR +11 basis points to +285bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +4 basis points to +539bps over bmk*
5-yr T-bond HU5YT=RR +6 basis points to +483bps over bmk*
10-yr T-bond HU10YT=RR +6 basis points to +421bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1156 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
For related news and prices, click on the codes in brackets: All
emerging market news []
Spot FX rates
Eastern Europe spot FX <EEFX=> Middle East spot FX <MEFX=>
Asia spot FX <ASIAFX=> Latin America spot FX <LATAMFX=>
Other news and reports
World central bank news [] Economic Data Guide <ECONGUIDE>
Official rates [] Emerging Diary []
Top events [] Diaries [] Diaries Index []
(Reporting by Reuters bureaus, writing by Jason Hovet; editing
by Patrick Graham)
