* Forint, bonds stronger; recover after Moody's downgrade
* Impact of euro zone woes on CEE currencies eases
* Reaction to Romanian budget approval muted
(Updates with Hungarian tender, budget approval)
By Dagmara Leszkowicz and Marius Zaharia
WARSAW/BUCHAREST, Dec 7 (Reuters) - The forint outperformed
its central European peers on Tuesday as a stronger euro and the
approval of Hungary's 2011 budget framework helped it to recover
from Monday's sovereign downgrade by Moody's.
Hungary's parliament approved a plan relying on optimistic
growth projections and unorthodox measures to achieve a deficit
of 3 percent of gross domestic product (GDP). []
The plan has unnerved investors over the past months,
sparking fears that a tax on banks and other sectors could hurt
growth and a move to scrap private pension funds could eliminate
a steady source of demand for government debt.
Below-forecast output data in Hungary and Czech Republic
earlier on Tuesday signalled the risks to bets on a steady
economic recovery next year. [] []
Hungarian bonds bounced off support levels at around 8
percent on Monday and the move continued on Tuesday with yields
falling by up to 13 basis points, while the forint <EURHUF=> had
gained 0.9 percent to the euro by 1442 GMT.
Dealers said markets do not expect any other significant
negative news just yet and many investors were entering
positions for 2011 at current prices, which seemed cheap after
months of Hungarian underperformance against peers in the
eastern part of the European Union.
"I don't expect much to happen this year, what can still
happen is (a downgrade by) Fitch," one trader said.
"The sell-off looks to have ended, people are arranging
positions ahead of the year-end and some of them are opening
positions for next year at the current favourable levels."
A three-month Treasury bill auction attracted stronger than
expected demand and the government raised its offer to 45
billion forints from 40 billion, with the average yield dropping
to 5.72 percent from 5.78 percent. []
One trader said demand rose, despite last week's surprise
central bank rate increase, because a large amount of Treasury
bills will expire on Dec. 15.
Markets are giving the Hungarian government the benefit of
the doubt for the moment, but still expect it to deliver on its
promise to come up with a savings plan early next year.
"If the government does not announce structural reforms,
there will be downgrades (to junk status) in March and the
market could explode," another trader said.
TRACKING EURO
A stronger euro has also helped the forint recover and
boosted appetite for other assets in the region, with the Polish
zloty <EURPLN=> and Romania's leu <EURRON=> gaining 0.2-0.3
percent.
The Czech crown <EURCZK=> fell 0.3 percent on regional cross
trades, as investors took advantage of the recent steep
weakening in the zloty to buy the cheap Polish currency in
exchange for crowns, a trader said.
The region's currencies have been hit recently by worries
about reverberations from the euro zone crisis, but analysts
said this effect seems to have abated for now.
"Of course it is not the euro zone crisis itself that is
fading, but it looks like its impact on the region seems to be
weaker now," said Ulrich Leuchtmann of Commerzbank in Frankfurt.
In Romania, the coalition government late on Monday approved
a cost-cutting budget for next year, a move that should allow
Bucharest to keep its IMF-led aid package on track.
The government took additional measures to boost its
revenues by enforcing health insurance taxes for most pensioners
and to cut spending by halving maternity leave to a year.
Dealers said market reaction was subdued because it still
needs to clear parliament, where the government holds a fragile
majority and budget talks are usually extended.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.084 25.005 -0.31% +4.92%
Polish zloty <EURPLN=> 4.008 4.014 +0.15% +2.4%
Hungarian forint <EURHUF=> 277.51 279.9 +0.86% -2.58%
Croatian kuna <EURHRK=> 7.381 7.372 -0.12% -0.97%
Romanian leu <EURRON=> 4.297 4.308 +0.26% -1.39%
Serbian dinar <EURRSD=> 107.03 107.1 +0.07% -10.42%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +1 basis points to 101bps over bmk*
7-yr T-bond CZ7YT=RR +2 basis points to +89bps over bmk*
10-yr T-bond CZ9YT=RR -7 basis points to +93bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -1 basis points to +382bps over bmk*
5-yr T-bond PL5YT=RR -3 basis points to +358bps over bmk*
10-yr T-bond PL10YT=RR -3 basis points to +304bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -11 basis points to +675bps over bmk*
5-yr T-bond HU5YT=RR -19 basis points to +604bps over bmk*
10-yr T-bond HU10YT=RR -20 basis points to +502bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1642 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 Ruth Pitchford)
