* Zloty outperforms, boosted by rate hike calls
* Other FX weaker, investors await FED decision
* CEE seen lagging emrg mkts due to euro zone periphery woes
(Updates with QE2 comments, FX poll, Danske trade idea)
By Dagmara Leszkowicz and Marius Zaharia
WARSAW, Nov 3 (Reuters) - The Polish zloty rose on Wednesday
due to rate hike calls by two central bankers, while its peers
eased as investors bet central Europe will gain less than other
emerging markets from a new round of U.S monetary easing.
The Federal Reserve is expected to announce a second round
of quantitative easing later on Wednesday, with analysts
predicting it will buy assets worth around $100 billion a month
for five months with an open mandate to purchase more.
Dealers expect central Europe to gain if expectations are
met or exceeded, but say worries of a spillover from fringe euro
zone debt woes as well as domestic political and fiscal
challenges could be a drag, especially in Hungary and Romania.
"Assuming the baseline, that (QE2) happens in size, it means
people will continue to ignore the reality in Hungary now into
next year ...(and) Poland will continue to see inflows and zloty
strength," said Nomura's Peter Attard Montalto.
"But if the market is surprised to the downside by (the QE)
volume then we can see ... a rapid taking of profit across CEE
and a concentration back on domestic fundamentals."
Danske Bank analyst Lars Christensen said he expects central
European assets to underperform those in some Latin American or
Asian countries as investors get picky in their hunt for higher
yields.
"We think overall that QE2 will help CEE assets, but euro
zone problems, political uncertainties will hold back the rally
in some CEE markets," he said.
A Reuters poll showed the zloty was expected to lead
regional gains and firm about 4 percent in a year's time, while
the Czech crown and Romania's leu could gain 1-2 percent.
Hungary's forint could stay flat, as a recently published
2011 budget resolved imminent deficit problems but left question
marks over long term budget management. []
Standard & Poor's affirmed Hungary's rating on Tuesday, but
kept the outlook negative due to fiscal risks. []
RATE HIKE TALK
A member of the Polish central bank's Monetary Policy
Council (MPC), Anna Zielinska-Glebocka, said on Wednesday it
should consider an interest rate hike after a series of
better-than-expected economic data. []
Her comments echoed those made by fellow MPC member Jan
Winiecki on Tuesday.
"Since (end-October) we had a couple of data publications
and comments on possible rate hikes which boosted the zloty,"
said one Warsaw-based dealer.
The market widely expects the 10-strong body to raise rates
from an all-time low of 3.5 percent but is split over the timing
of a hike.
The 3x6 forward rate agreement (FRA), which projects where
three-month rates will be in three months' time, are now pricing
in a rise of 40 basis points, up 4 basis points since the end of
last week. The bank normally moves in multiples of 25 basis
points and narrowly rejected a 50 bps rise in September.
By 1429 GMT the zloty <EURPLN=> was 0.7 percent up against
the euro, trading at 3.927. The forint <EURHUF=> was 0.4 percent
lowe, the leu <EURRON=> was 0.1 percent down, while the crown
<EURCZK=> was flat.
Danske Bank said on Wednesday that investors should take
profit on a trade recommended on Oct. 18 to buy Hungarian forint
for Polish zloty <HUFPLN=R> as the Polish economy powers ahead.
[]
Polish bonds edged up with dealers saying possible rate
hikes were already in prices.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.491 24.493 +0.01% +7.46%
Polish zloty <EURPLN=> 3.927 3.953 +0.66% +4.51%
Hungarian forint <EURHUF=> 272.1 271.09 -0.37% -0.64%
Croatian kuna <EURHRK=> 7.343 7.346 +0.04% -0.46%
Romanian leu <EURRON=> 4.295 4.291 -0.09% -1.34%
Serbian dinar <EURRSD=> 107.3 107.53 +0.21% -10.64%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +3 basis points to 85bps over bmk*
7-yr T-bond CZ7YT=RR -2 basis points to +86bps over bmk*
10-yr T-bond CZ9YT=RR +5 basis points to +113bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR 0 basis points to +378bps over bmk*
5-yr T-bond PL5YT=RR +8 basis points to +361bps over bmk*
10-yr T-bond PL10YT=RR +1 basis points to +322bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +1 basis points to +542bps over bmk*
5-yr T-bond HU5YT=RR +11 basis points to +517bps over bmk*
10-yr T-bond HU10YT=RR +3 basis points to +456bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1529 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, Writing by Dagmara Leszkowicz
and Marius Zaharia; Editing by Patrick Graham)
