* Investors watching Romania court ruling on austerity
* Positive result mostly priced-in, surprise would hit leu
* Global risk trade still drives region
(Adds bonds, Romania CDS, updates prices)
By Jason Hovet
PRAGUE, June 24 (Reuters) - The leu eased from morning highs with other emerging European currencies on Thursday, with investors keeping a wary eye on a court ruling later in the day over austerity measures key for Romanian aid.
The Romanian government survived a parliamentary no-confidence vote on June 15 over the tough public sector pay cuts it plans, and investors have mostly priced in a positive ruling at the constitutional court where appeals were made.
But the court has a history of overturning reform packages, making it difficult for governments to keep spending in check.
A court rejection of the cost-saving measures would further postpone International Monetary Fund aid, increasing financing risks. [
]Romanian 5-year credit default swaps widened around 9 basis points to a nearly two-week high of 380 bps on Thursday.
The leu <EURRON=> inched down a touch to 4.229 to the euro by 0909 GMT, sticking around its lowest levels this year.
"All we can do for now is expect the ruling," said one trader in Bucharest.
"If the cuts pass then the leu's firming should be rather modest, as the market has priced in that the measures will pass. Should they be rejected, we will likely see sudden depreciation."
WEAK DOLLAR GIVES LIMITED BOOST
The currency performed slight better than the Polish zloty <EURPLN=> and Hungary's forint <EURHUF=>, which slipped 0.1 percent and 0.2 percent, respectively after gaining around half a percent in early traded.
The Czech crown <EURCZK=> was little changed on the day at 25.707 to the euro. The unit eked out gains on Wednesday amid poor risk appetite and has seen its weakening capped at 25.800.
Currencies were helped early by a weaker dollar after the U.S. Federal Reserve said the economic recovery was faltering, hurting the U.S. currency. But the outlook later weighed on stock openings, knocking support for currencies. [
]Budapest <
> lost 1.1 percent and other exchanges fell up to 1 percent. The Thomson Reuters Equity Emerging Markets Europe Index <.TRXFLDEETU> reversed an early rise to fall 0.4 percent.Dealers expected currencies to take cues from global risk trade. Central European markets have been rattled recently by growing worries over the region's ability to rein in budget deficits, especially in IMF-aid recipients Romania and Hungary.
Hungary's new government hopes to cut next year's budget deficit to levels agreed with lenders and will seek IMF/EU backing for reforms, Deputy Prime Minister Tibor Navracsics said late on Wednesday. [
]The fiscal crisis and austerity measures have led to more cautious central bank policies, and have made many analysts push back expectations for rate hikes in the stronger economies like Poland and the Czech Republic.
The Czech central bank left its benchmark rate on hold at an all-time low of 0.75 percent as expected and most analysts expect the first hike in the first part of 2011. [
] But Polish bond yields have risen to their highest level this month on expectations a rate hike there could still happen this year.--------------------------MARKET SNAPSHOT-------------------- Currency Latest Previous Local Local
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today in 2010 Czech crown <EURCZK=> 25.707 25.695 -0.05% +2.38% Polish zloty <EURPLN=> 4.083 4.08 -0.07% +0.51% Hungarian forint <EURHUF=> 281.31 280.67 -0.23% -3.9% Croatian kuna <EURHRK=> 7.191 7.191 0% +1.64% Romanian leu <EURRON=> 4.229 4.228 -0.02% +0.2% Serbian dinar <EURRSD=> 104.17 104.04 -0.12% -7.96% Yield Spreads Czech treasury bonds <0#CZBMK=> 2-yr T-bond CZ2YT=RR +4 basis points to 151bps over bmk* 7-yr T-bond CZ7YT=RR +10 basis points to +167bps over bmk* 10-yr T-bond CZ9YT=RR +2 basis points to +158bps over bmk* Hungarian treasury bonds <0#HUBMK=> 3-yr T-bond HU3YT=RR +14 basis points to +630bps over bmk* 5-yr T-bond HU5YT=RR +14 basis points to +593bps over bmk* 10-yr T-bond HU10YT=RR +7 basis points to +499bps over bmk* *Benchmark is German bond equivalent. All data taken from Reuters at 1108 CET. Currency percent change calculated from the daily domestic close at 1600 GMT. For related news and prices, click on the codes in brackets: All emerging market news [
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