* Forint down ahead of rate decision
* Other FX mixed, euro zone PMI disappoint
* Polish bonds retreat ahead of switch tender due Wednesday
(Adds fixed income, detail)
By Dagmara Leszkowicz
WARSAW, Aug 23 (Reuters) - The Hungarian forint eased on
Monday ahead of the central bank's monthly interest rate
decision while other currencies were mixed, but dealers said
worse-than-expected euro zone PMI readings could hurt sentiment.
All analysts polled by Reuters expect Hungary's central bank
to keep its base rate <NBH1> on hold this month following a
10-month period of easing. Almost half of them see rates
remaining flat for the rest of the year.
"Nobody expects a rate step as market uncertainty
continues," analysts at Commerzbank wrote in a note.
"But it is likely to be interesting whether the central bank
comments suggest that it continues to defy all attempts on the
part of politicians to interfere," they said, alluding to
ongoing tensions between the central bank and the recently
elected government, which wants to oust the central bank
governor.
The decision will be announced at 1200 GMT followed by a
news conference at 1300 GMT, where the bank will also present
forecasts from its new inflation report.
Last month's central bank meeting followed the surprise
suspension of a review of Hungary's loan programme by the
International Monetary Fund and the European Union, which sent
the forint <EURHUF=> skidding to 16-month lows against the euro,
and prompted rating agencies to warn of the risk of a rating
downgrade.
A pick-up in global risk appetite since then, however, has
helped Hungary's currency to trim some of its previous losses.
The Polish central bank's Monetary Policy Council (MPC) is
also expected to keep interest rates unchanged on Tuesday at an
all-time low for the 14th consecutive month.
Analysts see Polish borrowing costs rising by a moderate 25
basis points by the end of the year as the economy recovers from
its recent slowdown and inflationary pressures start to build.
BONDS RETREAT
By 0940 GMT the forint <EURHUF=> was 0.6 percent weaker,
trading at 280.67 against the euro.
Other currencies were mixed, with the Polish zloty <EURPLN=>
0.4 percent weaker while the Czech crown <EURCZK=> and Romanian
leu <EURRON=> were each up a touch against the common currency
but off early morning highs.
Dealers said there was no immediate reaction in regional
markets to worse-than-expected euro zone PMI readings, but that
they could hurt sentiment in the region. []
"So far it (the PMI reading) is the only factor that could
weaken the zloty today but we should note that the Polish unit
is falling for the third consecutive month, so it may be the
beginning of a small correction," said Przemyslaw Winiarczyk, a
dealer at Millennium bank.
"I see the next resistance level at 4.0180-4.020 (against
the euro)," he added.
The euro, the region's main reference currency, moved back
towards its all-time low against the Swiss franc on Monday.
That does not bode well for Hungary and Poland, where a
large chunk of household loans are denominated in the Swiss
currency.
The bond market also retreated following a recent rally
which had seen Polish yields fall by up to 28 basis points.
Polish paper yields rose some 2-3 basis points across the
curve on Monday and dealers said they expected them to rise
further ahead of a switch tender due on Wednesday.
"I think that prices should continue falling until the
switch tender, but if the tender proves successful, they may
bounce back," said one Warsaw-based dealer.
Investors snapped up regional bonds last week as record lows
hit by German Bund yields drew attention to the high premiums
that emerging economies with relatively positive fundamentals
such as Poland and Turkey are offering.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.818 24.826 +0.03% +6.04%
Polish zloty <EURPLN=> 3.992 3.977 -0.38% +2.81%
Hungarian forint <EURHUF=> 280.67 279.03 -0.58% -3.68%
Croatian kuna <EURHRK=> 7.268 7.28 +0.17% +0.57%
Romanian leu <EURRON=> 4.222 4.225 +0.07% +0.36%
Serbian dinar <EURRSD=> 104.99 104.627 -0.35% -8.68%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR 0 basis points to 117bps over bmk*
7-yr T-bond CZ7YT=RR 0 basis points to +120bps over bmk*
10-yr T-bond CZ9YT=RR +3 basis points to +119bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +3 basis points to +394bps over bmk*
5-yr T-bond PL5YT=RR +2 basis points to +373bps over bmk*
10-yr T-bond PL10YT=RR +1 basis points to +308bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -1 basis points to +573bps over bmk*
5-yr T-bond HU5YT=RR +12 basis points to +531bps over bmk*
10-yr T-bond HU10YT=RR +18 basis points to +454bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1140 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;
Editing by Stephen Nisbet and Susan Fenton)
