* Currencies follow stocks lower on euro zone concerns
* Hungary bond yields rise slightly after strong auctions
* Higher Romania inflation reading dents rate cut chances
(Adds new comments and prices)
By Jason Hovet and Sandor Peto
PRAGUE/BUDAPEST, March 10 (Reuters) - Hungarian bonds
attracted robust demand on Thursday at the government's first
auctions after it announced fiscal reforms, but euro zone debt
worries continued to weigh on sentiment across the region.
Despite the strong auctions, Hungary's bonds and most other
assets in Central Europe eased due to renewed concerns over the
euro zone, although hawkish comments from Hungarian and Polish
central bankers lent some support to currencies.
Poland's zloty <EURPLN=> dropped 0.3 percent against the
euro to 3.994 by 1510 GMT, the forint <EURHUF=> shed 0.2 percent
to 273.12, while the crown <EURCZK=> and the leu <EURRON=> eased
only a shade, to 24.332 and 4.191, respectively.
The region's main equity indices fell by 0.6-1.1 percent
except for Romania's, which rose 0.8 percent <>.
The euro, Eastern Europe's main reference currency, fell
against the dollar after ratings agency Moody's downgraded
Spain, days after it cut Greece's rating by three notches.
The downgrades have fuelled negative sentiment towards
struggling euro zone borrowers ahead of Friday's summit of the
currency bloc and could also weigh on assets in the European
Union's east, although little impact has been seen so far.
Hungary sold 65 billion forints of bonds at its auctions
with strong oversubscription. [] Demand was weaker
at a later top-up auction, but the government still managed to
place another 6.1 billion forints of debt.
Traders said foreign investors were optimistic that Hungary
will implement deficit-cutting reforms pledged last week,
although yield levels rose slightly after the auction.
"The international market mood has worsened ... but
sentiment over Hungary remains good. Investors are still picking
papers and continue to reverse underweight positions," one
Budapest-based fixed income trader said.
Another dealer said the forint was relatively resilient to
the negative news from abroad and could stay at 270-275 to the
euro in the short term, unless the U.S. Federal Reserve signals
next week that it would no longer pump cheap money into markets.
"In the medium-term, the forint may become more vulnerable
as the amount of short euro positions (against the forint) has
increased recently," the dealer said.
HAWKISH COMMENTS
In Poland, central banker Andrzej Bratkowski said the
monetary policy council could raise rates by another 50 basis
points in the second quarter. []
Another Polish MPC member, Andrzej Kazmierczak, said rates
should rise if inflation picked up above 4 percent from the 3.8
percent seen in January. []
Markets are pricing in an aggressive series of Polish hikes
this year, but analysts have questioned the pace of tightening
and the central bank held rates unchanged at the last meeting.
Hungary was the first country in central Europe to hike
rates after the financial crisis, and has raised them by 75
basis points since November.
It paused in February, however, and analysts forecast steady
rates ahead after the centre-right ruling Fidesz party, which
has criticised the tightening, elected two new rate setters to
the central bank's Monetary Council.
In Romania, where markets have been factoring in looser
monetary policy this year, a pick-up in inflation that narrowed
the scope for rate cuts underpinned the leu.
Annual inflation quickened to 7.6 percent in February,
topping expectations and the central bank's target.
"The question now is how and if you can avoid a rate hike,"
said Ionut Dumitru, chief economist at Raiffeisen in Bucharest.
"Our scenario right now envisions flat rates and a slightly
firmer leu currency."
Unlike Hungary or Poland, the Czech central bank has yet to
tighten rates, and weak inflation data on Wednesday dented
expectations of a rush to raise borrowing costs. []
Hungary will publish February inflation figures early on
Friday. []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2011
Czech crown <EURCZK=> 24.332 24.326 -0.02% +2.75%
Polish zloty <EURPLN=> 3.994 3.982 -0.3% -0.9%
Hungarian forint <EURHUF=> 273.12 272.5 -0.23% +1.78%
Croatian kuna <EURHRK=> 7.39 7.39 0% -0.14%
Romanian leu <EURRON=> 4.191 4.189 -0.05% +1%
Serbian dinar <EURRSD=> 102.91 103.31 +0.39% +2.93%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -3 basis points to 8bps over bmk*
7-yr T-bond CZ7YT=RR -1 basis points to +69bps over bmk*
10-yr T-bond CZ9YT=RR -1 basis points to +76bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +4 basis points to +342bps over bmk*
5-yr T-bond PL5YT=RR +2 basis points to +333bps over bmk*
10-yr T-bond PL10YT=RR +2 basis points to +306bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +13 basis points to +498bps over bmk*
5-yr T-bond HU5YT=RR +13 basis points to +482bps over bmk*
10-yr T-bond HU10YT=RR +12 basis points to +422bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1610 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 Catherine Evans)
