* Latvia devaluation weighs on region, zloty worst hit
* Dollar weakness supports recovery late in session
* Stocks buck trend, helped by risk appetite
* Hungary PMI improves with region
(Recasts with details, quotes, bond prices)
PRAGUE/BUDAPEST, June 2 (Reuters) - Central Europe's
currencies gave up recent gains on Tuesday, with worries of a
Baltic devaluation overshadowing strong gains in stock markets.
The Polish zloty, Hungarian forint and Czech crown regained
some ground by late trade but stayed weaker after strong gains
posted in the previous session.
Stocks rose further but currency investors remain cautious
due to nerves over how economies in the heavily export- and
foreign financing-reliant region will adjust as the impact of a
global crisis that has hammered its currencies plays out.
There is growing speculation that Latvia could be the first
of the EU's Baltic states to devalue its currency, supported on
Tuesday by comments from an adviser to Latvia's prime minister
that officials later moved to play down. []
"Early on, Latvia's possible currency devaluation worsened
sentiment... this is a bad message from the region," one
Budapest-based dealer said.
"Later, the weakening of the dollar, which is usually good
for emerging markets, tempered the loss."
Poland's zloty<EURPLN=> led losses, weakening by 0.7 percent
by 1412 GMT to 4.475 against the euro. Hungary's forint<EURHUF=>
weakened by 0.6 percent to 280.91, while the Romanian
leu<EURRON=> and the Czech crown<EURCZK=> shed 0.3 and 0.2
percent, respectively.
Stock markets, meanwhile, continued to firm. Budapest, where
markets were closed on Monday, overperformed its regional peers,
with the <> equity index rising about 4 percent.
A months-long rally for global risk appetite has helped
currencies rebound as much as 10 percent from mid-February, led
by the zloty.
Strategists have said currencies still have room to gain in
the rally, although weakening was likely in the coming months
because economic fundamentals -- such as rising joblessness and
lower manufacturing output -- have not kept pace with the rise.
LOSING OUT
Investor flows have also not kept up, with fund tracker EPFR
data showing outflows from emerging Europe equity funds
year-to-date as money shifts towards emerging market peers with
stronger fundamental stories. []
Central Europe's export-driven economies have been punished
by falling western demand, and budget deficits and borrowing
have risen in turn.
Purchasing managers' indices in Poland, Czech Republic and
Hungary have all improved, but remain below the key 50 level
dividing contraction from expansion. []
The Czech finance ministry surprised slightly on Monday with
plans for two auctions in the slow summer months of July and
August. Czech bond yields ticked up on Tuesday, mainly on
shorter-dated issues.
Polish government bonds weakened early on Tuesday due to
profit-taking, but than recouped some of its previous losses,
tracking stocks.
Hungarian bonds, however, eased ahead of Thursday's
auctions<HUISSUE> and European Parliament elections over the
week-end where the ruling Socialists who are implementing deep
spending cuts are seen running into a crushing defeat.
"Investors are in a wait-and-see stance due to the elections
which represent a political risk," one trader said.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.727 26.687 -0.15% +0.1%
Polish zloty <EURPLN=> 4.475 4.442 -0.74% -8.04%
Hungarian forint <EURHUF=> 280.91 279.36 -0.55% -6.18%
Croatian kuna <EURHRK=> 7.342 7.347 +0.07% +0.31%
Romanian leu <EURRON=> 4.185 4.174 -0.26% -4.08%
Serbian dinar <EURRSD=> 93.916 94.096 +0.19% -4.72%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +10 basis points to 151bps over bmk*
4-yr T-bond CZ4YT=RR +10 basis points to +158bps over bmk*
8-yr T-bond CZ8YT=RR +14 basis points to +273bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +3 basis points to +403bps over bmk*
5-yr T-bond PL5YT=RR +1 basis points to +308bps over bmk*
10-yr T-bond PL10YT=RR -2 basis points to +258bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -21 basis points to +844bps over bmk*
5-yr T-bond HU5YT=RR -57 basis points to +757bps over bmk*
10-yr T-bond HU10YT=RR -48 basis points to +648bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1612 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Jason Hovet/Sandor
Peto; Editing by Patrick Graham)
