* Zloty leads currency easing on budget concerns
* Hungary lifts GDP fcast for 2011, stems forint decline
* PLN/HUF position reversal also helps forint
(Recasts with new comments, detail, updates prices)
By Marton Dunai and Sandor Peto
BUDAPEST, Dec 8 (Reuters) - The zloty led a weakening of
currencies in the European Union's eastern region on Wednesday
as Poland's high budget deficit overshadowed Hungary's
medium-term fiscal sustainability problems.
Investors were closing earlier zloty/forint long positions,
and a Polish rate-setter warned that Monday's downgrade of
nearby Hungary's sovereign rating by Moody's may spill over into
Polish bonds. []
Euro zone debt problems continued to weigh on sentiment and
the euro's retreat against the dollar <EUR=> cut risk appetite.
The zloty <EURPLN=> fell 0.6 percent to 4.04 against the
euro by 1044 GMT, while the forint shed 0.2 percent to 278.05.
The forint was quoted at 68.69/74 to the zloty <PLNHUF=R>,
firming up from a peak of around 70.1628 on Monday.
Hungarian bonds continued to recover from falls.
The relative movement of the two countries' assets came
despite Poland's better fundamentals, with analysts forecasting
zloty outperformance in 2011 <CEEFXPOLL01>, traders said.
One Budapest-based trader said the cause was an investment
bank recommendation to change zloty/forint positions.
Another dealer said the forint was outperforming because the
government lifted its 2011 GDP growth forecast to over 3 percent
and Hungary had solved its short-term deficit problem by moving
private pension fund assets into the state budget.
"The Polish are also thinking about changes in the private
pension system, though they say they will be less drastic," the
dealer said. "Socially that can be good, but in the financial
sense that's a less effective way to solve budget problems."
BUDGET TRENDS UNDER SCRUTINY
Poland's budget deficit is seen at about 8 percent of gross
domestic product this year. A top Hungarian Economy Ministry
official said the country would stick to its deficit target
below the European Union's ceiling at 3 percent of GDP, and will
honour that ceiling in 2012 as well. []
Analysts have been more optimistic over Poland, whose debt
load is much lower than Hungary, and where economic growth
prospects are better [], while Hungary's
unorthodox temporary fiscal measures have triggered concerns.
Hungary's parliament approved the key figures of the 2011
budget on Tuesday, a day after rating agency Moody's downgraded
Hungary's debt to the lowest investment-grade level.
[]
"Most market players expect another downgrade from Fitch, by
which the rating agency would match the rating levels of
Moody's and S&P," CIB Bank said in a morning note on Wednesday.
The National Bank of Hungary publishes the minutes of its
Nov 29 rate meeting later on Wednesday, which investors will
scour for clues about last month's surprise rate rise -- the
first after a six-month period of steady rates.
The Czech crown bucked the falls with relatively strong
economic fundamentals giving some support to the region's
safe-haven currency. It firmed 0.1 percent to 25.092.
But KBC said in a note on the region that technical factors
maintained the risk of crown weakening after it briefly touched
its 200-day moving average at 25.12 on Tuesday.
"We believe that, if the (crown) breaks the above mentioned
200-day moving average, the EUR/CZK currency pair could open
room for a further increase to 25.50 EUR/CZK or even to 25.70
EUR/CZK," it said.
Romania's parliament approved IMF-backed pension reforms on
Tuesday, improving its chances of keeping a vital 20 billion
euro international bailout on track. []
However, dealers said pension reform approval had little
bearing on the leu currency, as the government still faces a
time-consuming potential no confidence vote over other
IMF-backed reforms and its budget plan for 2011.
The government is expected to survive another no confidence
vote, but political noise would cancel out potential currency
gains, dealers said.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.092 25.111 +0.08% +4.89%
Polish zloty <EURPLN=> 4.04 4.017 -0.57% +1.58%
Hungarian forint <EURHUF=> 278.05 277.43 -0.22% -2.77%
Croatian kuna <EURHRK=> 7.386 7.381 -0.07% -1.04%
Romanian leu <EURRON=> 4.298 4.294 -0.09% -1.41%
Serbian dinar <EURRSD=> 107.32 107.21 -0.1% -10.66%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -6 basis points to 95bps over bmk*
7-yr T-bond CZ7YT=RR 0 basis points to +83bps over bmk*
10-yr T-bond CZ9YT=RR +4 basis points to +90bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -5 basis points to +366bps over bmk*
5-yr T-bond PL5YT=RR -5 basis points to +340bps over bmk*
10-yr T-bond PL10YT=RR -2 basis points to +295bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -15 basis points to +657bps over bmk*
5-yr T-bond HU5YT=RR -11 basis points to +588bps over bmk*
10-yr T-bond HU10YT=RR -9 basis points to +491bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1144 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaux, writing by Marton Dunai/Sandor
Peto; Editing by Toby Chopra)
