CEE MARKETS 2-FX steady, Hungary bond yields up on CPI surprise

                                
 * FX holds on to this week's gains
                                
 * Hungary's May inflation came well above forecast
                                
 * Czech industry plunges over 20 percent y/y in April
                                
 
  (adds background, Hungarian bonds)
                                
 By Marius Zaharia
                                
 BUCHAREST, June 11 (Reuters) - The forint held steady on
Thursday and Hungarian bond yields edged up 5 basis points after
surprisingly higher inflation data strengthened the case for
keeping rates on hold.
                                
 Hungary's annual inflation jumped to 3.8 percent in May from
3.4 percent in April and compared with a consensus forecast of 3
percent. <HUCPIY=ECI> <HUCPIC=ECI>
                                
 "May CPI came out shockingly high," said Mariann Trippon of
CIB. "We have to wait at least another month for the first rate
cut."
                                
 Hungarian central bank governor Andras Simor said on
Wednesday interest rate cuts would be "very risky" for financial
stability and any easing would depend on a stabilisation of
investors' risk perception. [ID:nL9503993]
                                
 By 0921 GMT, the forint <EURHUF=> edged down 0.1 percent
from Wednesday's domestic close. The Polish zloty <EURPLN=> rose
some 0.4 percent while local markets were closed for a public
holiday, the Czech crown <EURCZK=> gained 0.2 percent and
Romania's leu <EURRON=> was steady.
                                
 In times of market calm, investors have been attracted by
the forint's high interest rate premium. Hungary's 9.5 percent
benchmark rate compares with 3.75 percent in Poland and 1.5
percent in the Czech Republic.
                                
 In the Czech Republic, data showed industrial output plunged
some 22 percent in April, slightly less than last month's flash
estimate [ID:nPRA002609] <CZIPY=ECI>.
                                
 
                                
 BENIGN SENTIMENT
                                
 Worries over a possible currency devaluation in Latvia have
faded over the past two days, lifting downward pressure on
central European assets. The high-yielding forint has led gains
because it has also benefited from some cross trades against the
zloty.
                                
 Overnight, the IMF published Romania's letter of intent for
the financial aid secured by the Black Sea state in March, which
envisaged a faster drop in inflation due to the deepening
economic downturn [ID:nN10455405].
                                
 Romania's central bank would be allowed to intervene in the
currency market to defend the leu, but reserve losses exceeding
2 billion euros in any 30-day period would trigger consultation
with IMF staff, it said.
                                
 On Thursday, central banker Eugen Dijmarescu said he
expected Romania's recession to bottom out in the third quarter
this year [ID:nBUC001390]. The IMF expects the economy to
contract by around 4 percent in 2009.
                                
 The global mood was also supporting European emerging
markets.
                                
 "Positive vibes from global markets are keeping the higher
beta equity/FX stories in emerging Europe better bid, with
Budapest and Bucharest leading the way," Chevreux said in a
morning note.
                                
 "Besides the implications from continued EU/IMF financing,
we see little reason however for Hungary's outperformance."
                                
 Hungary is one of the worst hit by the global financial
crisis, and its economy is expected to shrink by over 6 percent.
----------------------MARKET SNAPSHOT-------------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2009 
Czech crown      <EURCZK=>  26.728   26.79   +0.23%   +0.09%
Polish zloty     <EURPLN=>   4.48     4.496  +0.36%   -8.15%
Hungarian forint <EURHUF=> 279.8    279.4    -0.14%   -5.81%
Croatian kuna    <EURHRK=>   7.263    7.26   -0.04%   +1.4%
Romanian leu     <EURRON=>   4.197    4.196  -0.02%   -4.35%
Serbian dinar    <EURRSD=>  93.777   93.886  +0.12%   -4.58%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond   CZ2YT=RR   +36 basis points to  127bps over bmk*
4-yr T-bond   CZ4YT=RR   +6 basis points to  +138bps over bmk*
8-yr T-bond   CZ8YT=RR   +9 basis points to  +251bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond   HU3YT=RR   +9 basis points to  +795bps over bmk*
5-yr T-bond   HU5YT=RR   +15 basis points to  +738bps over bmk*
10-yr T-bond   HU10YT=RR +16 basis points to  +656bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1221 CET.
Currency percent change calculated from the daily domestic 
close at 1600 GMT.
                                
For related news and prices, click on the codes in brackets:
All emerging market news [EMRG]
Spot FX rates
Eastern Europe spot FX <EEFX=>    Middle East spot FX <MEFX=>
Asia spot FX <ASIAFX=>       Latin America spot FX <LATAMFX=>
Other news and reports  
World central bank news [CEN]  Economic Data Guide <ECONGUIDE> 
Official rates [GLOBAL/INT]  Emerging Diary [EMRG/DIARY] 
Top events [M/DIARY]  Diaries [DIARY] Diaries Index [IND/DIARY] 
 (Reporting by Reuters bureaus, writing by Marius Zaharia;
Editing by Ruth Pitchford)