* Hungary economic plan fails to convince markets
* Forint hits October low, CEE stocks down as much as 1 pct
* Romania's leu steady after expected no-confidence motion
* Latvia's lat at 18-month low after revised budget data
(Updates throughout)
By Jason Hovet and Marius Zaharia
PRAGUE/BUCHAREST, Oct 18 (Reuters) - The forint fell to its
lowest so far this month on Monday as a long-awaited economic
plan unveiled by Hungary failed to remove worries about lagging
growth and deep fiscal imbalances.
Prime Minister Viktor Orban said he will reform the economy
by cutting income taxes and trimming costs with red tape, while
imposing big corporate taxes to meet budget deficit targets.
He said he was aware the taxes sent a poor message, but they
were necessary, and he was willing to go ahead with the plan,
which was also criticised for failing to give details on
spending cuts that could ensure sustainability of public
finances. []
The government's unorthodox measures run counter to the
austerity drive under way in much of Europe and have raised
concerns among investors.
At 1401 GMT,the forint <EURHUF=> was 0.8 percent down at
276.46 per euro, off an October low of 277.25 hit earlier.
Government bonds extended last week's losses early in the
session, trading 40-50 basis points higher than before the
special taxes were first announced on Wednesday.
Yields dropped 10-15 basis points later in the day, but
dealers said the move was exacerbated by thin trade and was not
a reaction to Orban's speech.
"It's still difficult to decide whether the whole lot is
good or bad for the bond market," a trader in Budapest said.
"It is good as far as the budget deficit is concerned, while
it is bad for economic growth. We don't know what the ... EU's
reaction will be."
Elsewhere, Latvia's lat fell to it lowest in 18 months
within its tight trading range after revised figures showed its
2009 budget deficit exceeded the limit set out in its IMF-led
bailout plan, highlighting how important austerity is for
markets. []
Central European stock markets fell as much as 0.8 percent
as risk appetite dropped. The zloty <EURPLN=> dipped 0.4 percent
to 3.92, while the Czech crown <EURCZK=> and the Romanian leu
<EURRON=> were little changed.
ROMANIA VOTE
In Romania, which like Hungary sought an IMF lifeline during
the economic crisis, the leftist opposition Social Democrats
have filed their no-confidence motion against the fragile
centrist coalition government, with a vote possible next week.
The vote is expected to be tight and the uncertainty around
it is seen pushing the leu lower, likely to test the
psychological level of 4.3 per euro later this week. But a
government collapse is far from being priced in, dealers said.
"It seems that some people are betting (on a government
collapse), but my scenario is that the government won't fall
because they have a majority and it seems that the opposition
doesn't want to come to power," one dealer said.
Romania's efforts to draft a credible budget for 2011 will
be the focus of its talks with the International Monetary Fund,
which is due to begin on Oct. 20 a review of the 20 billion euro
rescue plan. [] []
The country sold slightly more than planned at a six-month
treasury bills auction on Monday, the only maturity where
issuance goes smoothly at the finance ministry's self-imposed 7
percent yield ceiling. []
In Poland, labour market data halted a decline in bonds from
the start of the session. Yields were up to 5 basis points
higher on the day.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.505 24.499 -0.02% +7.4%
Polish zloty <EURPLN=> 3.917 3.903 -0.36% +4.77%
Hungarian forint <EURHUF=> 276.46 274.4 -0.75% -2.21%
Croatian kuna <EURHRK=> 7.328 7.321 -0.1% -0.26%
Romanian leu <EURRON=> 4.284 4.279 -0.12% -1.09%
Serbian dinar <EURRSD=> 105.99 105.89 -0.09% -9.54%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -6 basis points to 81bps over bmk*
7-yr T-bond CZ7YT=RR +1 basis points to +96bps over bmk*
10-yr T-bond CZ9YT=RR +1 basis points to +101bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -2 basis points to +469bps over bmk*
5-yr T-bond PL5YT=RR +3 basis points to +369bps over bmk*
10-yr T-bond PL10YT=RR +4 basis points to +319bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -7 basis points to +547bps over bmk*
5-yr T-bond HU5YT=RR -12 basis points to +527bps over bmk*
10-yr T-bond HU10YT=RR -10 basis points to +556bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1501 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 and
Marius Zaharia; Editing by Toby Chopra)
