* Latvia puts pressure on CEE mkts, but less than before
* Czech Sept. CPI dips m/m, rate cuts seen
(adds fixed income, quotes, detail)
By Marius Zaharia
BUCHAREST, Oct 9 (Reuters) - Central European currencies
weakened on Friday, led by the Polish zloty, as some investors
feared Latvia's woes might impact on the region, although the
reaction was less marked than when its crisis last flared in
June.
Currencies started to weaken on Thursday, when Latvia said
it was working on more budget cuts measures under pressure from
international lenders and was considering a plan to bail out
homeowners at the expense of banks. []
The dispute revived currency devaluation fears which
triggered some risk aversion in the region, which was also under
pressure from a stronger dollar. []
At 0913 GMT, the zloty <EURPLN=> was down 0.5 percent on the
day against the euro, while Hungary's forint <EURHUF=>, the
Czech crown <EURCZK=> and the Romanian leu <EURRON=> were about
0.1 percent weaker.
Dealers said zloty's underperformance was related to the
breach of a key level at 4.25 per euro.
The moves add to losses of up to 0.4 percent on the day on
Thursday, far less than in June when central European markets
were pressured for weeks by devaluation fears.
Analysts say the region appears largely insulated from
Latvia's woes as the worst of the global crisis has past and
investors will better discern between economies. []
"It is mainly a market reflex this time round," Commerzbank
said in a note.
"The current weakness of HUF, CZK and PLN therefore provides
short term potential for appreciations, either once the crisis
is overcome ... or after the big bang in Latvia has occurred and
it becomes obvious that it is inconsequential."
EYES ON CROWN
In the Czech Republic, expectations for a new rate cut from
the current record low of 1.25 percent increased after inflation
dipped 0.4 percent on the month in September. []
Central bank governor Zdenek Tuma launched an assault
against the crown, saying inflation could fall to negative
territory for a prolonged period if the unit remains strong
[].
The crown has lost almost 1.5 percent since Monday, when
Tuma said the bank's board had discussed the possibility of
market intervention at a meeting where the rest of the board
outvoted him and another member to leave rates on hold.
"Looming risk of another rate cut in early November,
re-emerging Baltic worries and threat of FX intervention bode
ill for near-term perspective of the crown, so we expect further
weakening," Komercni Banka trader Frantisek Kanka said.
Dealers see the crown falling beyond 26 per euro next week.
Czech bond yields dipped across the curve, with the 7-year
sliding 12 basis points to 162 over German bunds and the 10 year
by 15 basis points to 149.
Elsewhere, Hungarian bonds were quiet, with yields 3-4 basis
points lower across the curve. Thursday's successful bond
auctions brought yield levels further down despite recent
concerns that a market rally has been overdone. []
The state debt management agency AKK said it would make the
most of the rally and meet 2009 financing needs while the market
was favourable, then possibly cut bond issues at the end of the
year. []
Polish bonds were weaker, tracking the zloty.
With no other major events scheduled on Friday, markets were
waiting for a no-confidence vote for Romania's minority
government after the ruling coalition fell apart. []
Politics weighed on the zloty as well. On Wednesday, Prime
Minister Donald Tusk ditched three ministers and sacked the head
of an anti-graft body in an effort to draw a line under a
lobbying scandal that has harmed his cabinet's image.
[]
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.818 25.804 -0.05% +3.62%
Polish zloty <EURPLN=> 4.259 4.24 -0.45% -3.38%
Hungarian forint <EURHUF=> 270.7 270.35 -0.13% -2.64%
Croatian kuna <EURHRK=> 7.255 7.255 0% +1.52%
Romanian leu <EURRON=> 4.277 4.275 -0.05% -6.14%
Serbian dinar <EURRSD=> 92.911 92.89 -0.02% -3.69%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR -6 basis points to 140bps over bmk*
7-yr T-bond CZ7YT=RR -12 basis points to +162bps over bmk*
10-yr T-bond CZ10YT=RR -17 basis points to +147bps over
bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +7 basis points to +388bps over bmk*
5-yr T-bond PL5YT=RR +4 basis points to +338bps over bmk*
10-yr T-bond PL10YT=RR +2 basis points to +307bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -5 basis points to +535bps over bmk*
5-yr T-bond HU5YT=RR +38 basis points to +505bps over bmk*
10-yr T-bond HU10YT=RR +28 basis points to +454bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1213 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Marius Zaharia;
Editing by ...)
