(Corrects final paragraph to show Danske recommends buying
Czech debt instead of Spanish or Portuguese)
* CEE stocks fall 1-3 pct on euro zone, U.S. recovery gloom
* CEE FX fall but seen resilient to dollar strength
* Hungary short-dated bond yields around 13-week low
(Recasts with new prices, comments)
By Jason Hovet and Sandor Peto
PRAGUE/BUDAPEST, Feb 23 (Reuters) - Currencies in the
European Union's eastern states gave up some ground on Tuesday
as economic figures in the euro zone and the U.S. sparked new
worries about the pace of economic recovery.
But the zloty <EURPLN=> stayed near 13-month highs against
the euro hit earlier and Hungarian three-year government bond
yields traded at 13-week lows as the high-yielding region looks
safer than some euro zone members, mainly Greece.
A firming of the dollar versus Central Europe's reference
currency, the euro <EUR=>, weakened the region's units slightly
in afternoon trade but the earlier tight link with the dollar
weakened in the past three months.
Concerns over how big EU countries will bail out Greece have
caused some jitters in Central European markets, but budget
prospects in the region are better than in some euro zone
members, analysts said.
"We are seeing a breakdown of market correlations as we move
from a world of beta where everything traded off S&P to a world
of alpha and country fundamentals and idiosyncrasies," said
Peter Attard Montalto of Nomura International.
"There is also a positioning argument... we are seeing a
rotation of capital back into CEE (Central Eastern Europe) both
portfolio, FDI (foreign direct investment) and private equity
which was on hold last year."
The currencies changed little relative to a fall in equity
prices which knocked Hungarian stocks <> down by three
percent and Polish <> and Czech <> shares by one
percent.
The Polish unit is expected to lead gains in central Europe
this year as an export revival boosts local currencies.
The zloty <EURPLN=> briefly broke below 3.95 to the euro
early in the session before pulling back 0.3 percent on the day
to bid at 3.971 by 1505 GMT. <CEEFXPOLL01> The Czech crown
<EURCZK=> and the Romanian leu <EURRON=> dipped 0.1 percent.
Hungary's forint <EURHUF=> led with a 0.1 percent rise, but
the unit stayed near 270 per euro around which it has been
trading for several months, underperforming the region's other
units which have gained 2-3 percent so far this year.
HUNGARY YIELDS ATTRACT FLOWS
Hungary's central bank cut rates by 25 basis points to a
record low of 5.75 percent on Monday, signalling that global
market jitters have narrowed the room for further easing.
But Hungarian yields have become attractive for money
seeking high returns after a fall in euro zone debt yields and a
rise in risk in Greece, traders said.
Buying which had focused on short-term papers for months
reached long-term Hungarian bonds, while short-dated three-year
bond yields traded around 13-week lows at 6.79 percent.
"Foreigners bought into bonds quite heavily," one
Budapest-based trader said.
The Polish yield curve, meanwhile, which is below the
Hungarian curve, changed little.
In the longer term, however, a stronger Polish economy and
lower state debt can make Polish debt more attractive,
especially if the Hungarian central bank cuts rates further and
Poland hikes interest rates, analysts said.
Danske Bank said the debt woes of Greece are likely to
discourage the region's states from joining the euro zone and
that divergence would leave Czech government debt attractive as
the country had a relatively sound fiscal position.
Hungary, which has high debt and larger exposure to foreign
currency financing than Poland, will be in the weakest position
among the three states, Danske said in a note.
"We recommend buying CZK sovereign debt denominated in EUR
and replace Spanish or Portuguese sovereigns," it said. "We
recommend staying away from Hungarian government debt," it
added.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.761 25.725 -0.14% +2.16%
Polish zloty <EURPLN=> 3.971 3.96 -0.28% +3.35%
Hungarian forint <EURHUF=> 270.04 270.3 +0.1% +0.11%
Croatian kuna <EURHRK=> 7.284 7.292 +0.11% +0.35%
Romanian leu <EURRON=> 4.121 4.116 -0.12% +2.82%
Serbian dinar <EURRSD=> 99.02 98.95 -0.07% -3.17%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +8 basis points to 89bps over bmk*
7-yr T-bond CZ7YT=RR +4 basis points to +129bps over bmk*
10-yr T-bond CZ10YT=RR +7 basis points to +111bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +7 basis points to +394bps over bmk*
5-yr T-bond PL5YT=RR +11 basis points to +329bps over bmk*
10-yr T-bond PL10YT=RR +9 basis points to +288bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +7 basis points to +540bps over bmk*
5-yr T-bond HU5YT=RR +11 basis points to +492bps over bmk*
10-yr T-bond HU10YT=RR +9 basis points to +448bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1605 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
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(Reporting by Reuters bureaus, writing by Jason Hovet/Sandor
Peto; editing by Stephen Nisbet)
