* Forint and zloty fall more than 1 pct, stocks drop
* Dealers, strategists say downward trend not over
* Hungarians sell more T-bills than expected
(Updates throughout)
By Dagmara Leszkowicz and Jason Hovet
WARSAW/PRAGUE, March 17 (Reuters) - Poland's zloty and the
Hungarian forint fell versus the euro on Tuesday when a rally in
European stocks lost momentum, reversing some of emerging
European currencies' recent gains.
European stocks fell 1-2 percent on Tuesday to end a
week-long winning streak and knock back the forint, zloty and
Czech crown, which had rallied by up to 6 percent in the past
six sessions. []
At 1449 GMT the forint <EURHUF=> was 1.3 percent down
against the common currency to bid on the weak side of 300
[], and the zloty <EURPLN=> fell to 4.526 per euro.
The Czech crown <EURCZK=>, the region's best performer this
year, was steady but off morning highs at 26.625 per euro.
Investors' appetite for risk has picked up in recent weeks
on the back of hopes the troubled global banking sector may be
turning around, giving currencies their best run this year.
The Swiss central bank's move to sell the franc also gave
support and brought relief to central European borrowers who
sought franc loans due to higher domestic borrowing costs.
But dealers and strategists said the depreciation trend that
started last year when the global financial crisis accelerated
had not yet been halted, and that market bets on further gains
in the short run were now getting squeezed.
"This looks to be a nice squeeze of positions from people
thinking the world was a better place," a London-based dealer
said.
The region's currencies are still sharply down since the
fall of Lehman Brothers last September, with the zloty down 25
percent and the forint 19 percent. Romania's leu is 18.7 percent
off since mid-September, and the crown has dropped 9.3 percent.
The forint's recent recovery from record weakness beyond 317
hit earlier this month has lifted debt markets, and Hungary sold
more three-month bills than planned on Tuesday for lower yields.
[]
NOT OVER YET
The leu <EURRON=> also inched lower on Tuesday, though it
has held up well in the last month compared with its peers as
investors await signs of how much money the country may seek in
external aid from the EU, IMF and other financial institutions.
Most analysts say concerns over growth, financing and cuts
in local interest rates will keep markets under pressure. A
World Bank official said on Tuesday that eastern Europe and
central Asia would see zero growth this year. []
"The rebound in financial markets across the region over the
past week or so has been driven by a general improvement in
global risk appetite, rather than macroeconomic fundamentals or
a concerted policy response," Capital Economics said.
"Accordingly, the nascent recovery in sentiment towards the
region may soon run out of steam."
The zloty's sharp reversal from record highs in the summer
has left Polish companies exposed to $5 billion in soured
currency options and forward contracts. []
The Polish central bank has cut interest rates by a total of
200 basis points since late last year, and is expected to cut by
another 25 basis points at its March sitting next week.
Analysts expect Romanian and Hungarian rate setters to move
cautiously due to market fragility. Czech central bankers said
last month currency weakness could lead to rate hikes, but the
crown's recent strengthening has opened up space, analysts say.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.625 26.62 -0.02% +0.48%
Polish zloty <EURPLN=> 4.526 4.464 -1.37% -9.08%
Hungarian forint <EURHUF=> 301.12 297.25 -1.29% -12.48%
Croatian kuna <EURHRK=> 7.45 7.425 -0.34% -1.14%
Romanian leu <EURRON=> 4.29 4.281 -0.21% -6.42%
Serbian dinar <EURRSD=> 94.193 94.443 +0.27% -5.00%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -2 basis points to 232bps over bmk*
4-yr T-bond CZ4YT=RR -30 basis points to +245bps over bmk*
8-yr T-bond CZ8YT=RR +3 basis points to +309bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +2 basis points to +1057bps over bmk*
5-yr T-bond HU5YT=RR -15 basis points to +968bps over bmk*
10-yr T-bond HU10YT=RR +5 basis points to +819bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1555 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/Dagmara Leszkowicz; Editing by Ruth Pitchford)
