* Currencies turn flat or slightly positive
* Market eyes Romanian government developments
* Polish rate decision on Weds in focus
(Updates prices, adds bonds)
By Gergely Szakacs
BUDAPEST, Oct 26 (Reuters) - Central European currencies
reversed early losses, turning flat or a shade stronger on
Monday, while Hungary's forint eased slightly, although dealers
said dollar weakness would support regional currencies near
term.
At 1001 GMT, the forint <EURHUF=> was down 0.4 percent,
bucking the trend in central Europe after a three-day weekend.
However, traders said the 267 level looked a strong support and
there was no major impetus behind further easing.
Hungarian bond yields were little changed, with longer
maturities still hovering above 7 percent despite comments from
Hungarian rate-setters last week that there was room to cut
interest rates further due to a benign inflation outlook.
The National Bank of Hungary cut its base rate by 250 basis
points over the past four months to 7.0 percent to help an
economy which is seen contracting by 6-7 percent this year.
In Poland, the only central European economy expected to
register positive growth this year, the central bank is seen
keeping interest rates on hold at a record low of 3.5 percent at
a policy meeting due on Wednesday.
At 1001 GMT, the zloty <EURPLN=> was up 0.1 percent,
rebounding from modest losses early on and analysts said the
main focus for the week would be the central bank's interest
rate decision.
"The start of the week should be relatively quiet on the
currency market. The value of the zloty will continue to be
driven by the global sentiment and EUR/USD," Bank BPH wrote in a
morning note to clients.
All analysts polled expect policymakers to keep interest
rates on hold but many expect the statement to change its tone
to a more neutral one from current easing.
The bank's inflation projection will be released this month
as well, which should present a good opportunity for the central
bank's Monetary Policy Council to move away from its informal
easing bias, some economists say.
ROMANIAN POLITICS IN FOCUS
Romania's Prime Minister designate Lucian Croitoru unveiled
a cabinet line-up on Friday and parliament meets on Monday to
decide a schedule for hearings of the proposed government
members, and dealers said investors were eyeing the process.
[]
"If the proposed government doesn't pass, investors have
sort of priced it in already. But if by miracle we have a
government, then the leu should rally to 4.2," said a dealer in
Bucharest.
On Sunday, President Traian Basescu said the Romanian leu's
current level is "optimal" and Romania must ensure it continues
to receive international aid to avoid currency weakness that
would badly hurt households [].
Romania's leu <EURRON=> has been the most stable floating
currency in the eastern European Union since March, moving in a
tight range of 4.2-4.3 per euro. At 1001 GMT, it traded up 0.09
percent at 4.284 to the euro.
The Czech crown <EURCZK=> was also a tad stronger, tracking
a rebound in other central European currencies.
But investment bank Nordea said given a recent trend for a
weaker Czech crown, the strengthening it had expected to 25.00
per euro looked "harder and harder to reach," adding however
that for the time being it would not revise its forecast.
Czech bonds were mixed but found some support in Friday's
first reading approval that locked in a 2010 budget gap lower
than this year. []
Swaps rates were mostly steady, with the 1-year IRS
<CZKAM3PR1Y=> quoted at 1.71 percent after dropping around a
quarter point this month on expectations the central bank may
still loosen policy.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.856 25.876 +0.08% +3.47%
Polish zloty <EURPLN=> 4.171 4.176 +0.12% -1.34%
Hungarian forint <EURHUF=> 267.03 265.95 -0.4% -1.3%
Croatian kuna <EURHRK=> 7.215 7.215 0% +2.08%
Romanian leu <EURRON=> 4.284 4.288 +0.09% -6.29%
Serbian dinar <EURRSD=> 92.952 93.11 +0.17% -3.74%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR -11 basis points to 74bps over bmk*
7-yr T-bond CZ7YT=RR +12 basis points to +94bps over bmk*
10-yr T-bond CZ10YT=RR -1 basis points to +79bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +2 basis points to +357bps over bmk*
5-yr T-bond PL5YT=RR 0 basis points to +305bps over bmk*
10-yr T-bond PL10YT=RR -2 basis points to +272bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR 0 basis points to +503bps over bmk*
5-yr T-bond HU5YT=RR 0 basis points to +437bps over bmk*
10-yr T-bond HU10YT=RR -1 basis points to +378bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1101 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
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(Reporting by Reuters bureaus, Writing by Gergely Szakacs;
Editing by Victoria Main)
