* Hungarian long-term bonds extend loss on govt budget plan
* Romania's leu at 3-1/2 mth low ahead of no-confidence vote
* China rate hike dents regional sentiment
(Adds China impact, Polish industrial output)
By Sandor Peto and Marius Zaharia
BUDAPEST/BUCHAREST, Oct 19 (Reuters) - Central European
currencies weakened on Tuesday after a surprise rate hike by
China, while Hungary's long-term bonds extended losses due the
government's unconvincing economic plan.
China's central bank surprised markets with its first
increase rates interest since 2007, a move that boosted the
dollar and dented risk appetite due to concerns China's economy
may slow. []
Eastern Europe's currencies fell into negative territory due
to the hike after some of them were posting mild gains earlier
in the session. The move also added to pressure on Romania's
leu, which hit its lowest since July 2 as markets positioned for
a tight no-confidence vote against the government next week.
At 1253 GMT, the leu <EURRON=> was 0.2 percent down on the
day at 4.292 per euro, after testing 4.3 per euro earlier in the
session. The Polish zloty <EURPLN=> and the Hungarian forint
<EURHUF=> were 0.4 percent weaker, while the Czech crown
<EURCZK=> was flat.
"The latest move is mostly related to China, it is hurting
risk appetite," one dealer in Bucharest said.
Hungary gave more details on Monday of how it aims to fund
income tax cuts aimed at boosting domestic demand by imposing
large taxes on banks, energy firms and the telecoms and retail
sectors. []
Analysts said the scheme would ensure that Hungary meets its
near-term deficit-cutting targets but had doubts about the
longer term. They fear some of the measures could hurt economic
growth and the unorthodox approach could discourage investors.
"People in the market have two basic thoughts: on the one
hand they think the government will meet the deficit targets and
that's positive -- but the way they do it, the structure, is not
appropriate as it could hurt growth and raise inflation," an FX
dealer in Budapest said.
The government also plans to rechannel new savings from
private pension funds into state coffers, a move that could cut
domestic demand for government bonds.
Ten-year yields rose 5 basis points from Monday to 5-week
highs at 7.05 percent.
POLITICS WEIGH ON LEU
Analysts say a no-confidence vote against the coalition
government next Wednesday is unlikely to succeed.
However, less than a year after taking power and unlocking
funds from an IMF bailout, Romania's fragile government faces a
deep crisis of confidence which could prevent it from delivering
the reforms needed to keep the money flowing. []
"This brings a lot of uncertainty on the market," said one
dealer in Bucharest.
In Poland, industrial output posted again a double-digit
rise in September, confirming expectations of an interest rate
hike later this year, thus having little impact on currency and
bonds [].
Czech central banker Pavel Rezabek said on Monday the crown
rally was not a good thing for the economy, but reiterated
stable interest rates were needed. []
"The crown is very strong. If it were around 25, an interest
rate hike in the autumn would be simpler. (At current exchange
rates a hike) will not be before the first quarter 2011," Ceska
Sporitelna analysts said.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.504 24.491 -0.05% +7.4%
Polish zloty <EURPLN=> 3.941 3.926 -0.38% +4.14%
Hungarian forint <EURHUF=> 277.31 276.15 -0.42% -2.51%
Croatian kuna <EURHRK=> 7.33 7.332 +0.03% -0.28%
Romanian leu <EURRON=> 4.292 4.284 -0.19% -1.27%
Serbian dinar <EURRSD=> 105.77 105.91 +0.13% -9.35%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +4 basis points to 85bps over bmk*
7-yr T-bond CZ7YT=RR -8 basis points to +77bps over bmk*
10-yr T-bond CZ9YT=RR -2 basis points to +99bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +3 basis points to +389bps over bmk*
5-yr T-bond PL5YT=RR -4 basis points to +366bps over bmk*
10-yr T-bond PL10YT=RR +1 basis points to +319bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +1 basis points to +548bps over bmk*
5-yr T-bond HU5YT=RR 0 basis points to +527bps over bmk*
10-yr T-bond HU10YT=RR 0 basis points to +462bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1353 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Krisztina
Than/Sandor Peto/Marius Zaharia; Editing by ...)
