* Dollar turnaround prompts CEE currency retreat
* Uncertainty over lat, Latvian PM rules out devaluation
* Polish economy will grow in 2009 - cbank chief
* Hungary PM plans further budget cuts
(Updates prices, adds bonds)
By Marton Dunai
BUDAPEST, June 3 (Reuters) - Central European currencies,
led by the zloty and the forint, retreated from early gains on
Wednesday, hit by a bounce for the dollar against the euro
<EUR=> as concerns that Latvia might devalue the lat lingered.
In Latvia, Prime Minister Valdis Dombrowskis ruled out a
currency devaluation, which some analysts feared could have
triggered a regional selloff. []
That was the latest in a long line of official denials that
any sort of move to shift the lat's peg to the euro is in the
offing, but markets' suspicions have grown, knocking asset
across Central Europe and the Nordic region.
"This noise (of a potential devaluation) will be another
factor placing upward pressure on regional CDS from here,"
analyst Simon Quijano Evans of Cheuvreux said in a morning note.
"Foremost Hungary in our view, with the HUF also the most
vulnerable FX in the region."
The dollar's rebound against the euro<EUR=>, which often
indicates increased risk aversion and decreased appetite for
emerging market assets, put pressure on the region's currencies.
"We are tracking the waves of the international market," a
Budapest-based dealer said. "The dollar firmed... bourses in
London, Germany and the Dow futures are in negative territory."
As the euro hit the day's trough, the zloty <EURPLN=> stayed
on the stronger side of the key 4.50 level against the euro but
eased from early levels. The forint <EURHUF=> moved away from
its nearest resistance at 279, and eased to 281.18 by 1050 GMT.
Positive news from the central and eastern European region,
however, prevented a steeper selloff.
Poland's central bank chief Slawomir Skrzypek said the
country has a chance of economic growth this year even though
other economies in the EU were contracting. []
Polish bond yields were roughly flat, except for the 2-yr
paper which gained as the market awaits for a 2-year bond
auction.
"The 2-year bond yields dropped ahead of the auction as
investors expect heavy demand," a bond dealer in a bank in
Warsaw said. "It is hard to predict what will happen in the
afternoon as it mainly depends on the result of the upcoming
auction."
Earlier in the day, Hungarian Prime Minister Gordon Bajnai
said his government was considering further budget cuts to
contain the deficit in the economic downturn. []
In the U.S., pending home sales grew at the steepest rate in
more than seven years, indicating rising risk appetite, while
trading on Asian markets and Australia indicated that the rally
could continue in eastern Europe as well.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.805 26.765 -0.15% -0.19%
Polish zloty <EURPLN=> 4.481 4.49 +0.2% -8.17%
Hungarian forint <EURHUF=> 281.18 281.3 +0.04% -6.27%
Croatian kuna <EURHRK=> 7.33 7.336 +0.08% +0.48%
Romanian leu <EURRON=> 4.184 4.185 +0.02% -4.05%
Serbian dinar <EURRSD=> 93.88 93.916 +0.04% -4.69%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR 0 basis points to 152bps over bmk*
4-yr T-bond CZ4YT=RR +13 basis points to +166bps over bmk*
8-yr T-bond CZ8YT=RR +15 basis points to +280bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -5 basis points to +398bps over bmk*
5-yr T-bond PL5YT=RR +5 basis points to +316bps over bmk*
10-yr T-bond PL10YT=RR +5 basis points to +266bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -17 basis points to +850bps over bmk*
5-yr T-bond HU5YT=RR -53 basis points to +761bps over bmk*
10-yr T-bond HU10YT=RR -41 basis points to +657bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1250 CET.
(Reporting by Marton Dunai; editing by Patrick Graham)
