* Markets mixed as dollar rise cuts emerging appetite
* Poland holds main rate; signals tightening ahead
* Romanian govt survives no-confidence vote, leu steady
(Updates with Romanian vote, more comments)
By Marton Dunai and Jason Hovet
BUDAPEST/PRAGUE, Oct 27 (Reuters) - The zloty fell and
Polish bonds won back losses after the country's central bank
kept its main interest rate on hold, disappointing many in the
market who had anticipated the start of a tightening cycle.
The Polish currency had led emerging European losses even
before the rate decision as a rising dollar cut appetite for
riskier assets, leading to dollar short covering in the region.
The Romanian leu bucked the trend and bid roughly flat on
the day after rising slightly when the Romanian parliament
rejected a no-confidence motion against the shaky government
coalition.
The market had been divided over how Polish rate-setters
would react to recent strong data. Eight analysts forecast no
change in rates and seven projected a 25 basis point hike,
according to a Reuters poll last week. []
An unexpected jump in inflation in September and some
central bankers' calls for quick monetary tightening from a
record low of 3.5 percent had strengthened indications a rate
hike was close. [] []
The bank did move to tighten liquidity in its banking
sector, however, raising the minimum reserve requirement for
banks by 50 basis points to 3.5 percent. Governor Marek Belka
said this move was "a small signal" of tighter rates ahead.
"The central bank decision was a surprise for some players
who expected a 25 basis point hike," a Warsaw-based dealer said.
"There was also some short covering of dollars in emerging
markets that spread into CEE."
Polish interest rate swaps (IRS) lost 7-8 basis points at
the shorter end of the curve. The zloty <EURPLN=> extended
losses to bid down 0.8 percent at 3.964 to the euro by 1538 GMT,
while Polish bond yields recouped earlier losses.
ROMANIA VOTE
The leu <EURRON=> moved close to positive ground after the
centrist government survived a no-confidence vote in parliament
on Wednesday over its deep spending cuts and tax hike -- a
result that was priced-in already by markets.
The measures are needed to maintain a 20-billion-euro
IMF-led bailout. [] []
"(The government's) survival is already priced in so the leu
wouldn't go any further than 4.25-4.26," one Bucharest dealer
said. "Otherwise, it will go towards 4.35-4.4."
The leu bid down 0.05 percent on the day at 4.273 per euro
after the vote. The Hungarian forint <EURHUF=> lost 0.1 percent
while the Czech crown <EURCZK=> was up a touch at 24.618.
The forint remains under pressure, with the IMF's criticism
of Hungary's fiscal reforms on Monday weighing. Bond yields rose
as much as 15 basis points at the short end after the
government's latest fiscal measures stirred markets.
[]
Investors were also concerned by the ruling Fidesz party's
move on Tuesday to prevent the Constitutional Court from ruling
on changes in the pension system and other budgetary issues.
But dealers and analysts said markets would continue to move
with expectations of more quantitative easing (QE) from the U.S.
Federal Reserve. The dollar has weakened on prospects of more
asset buying by the Fed -- sending investors to seek higher
yields in emerging markets -- but investors are now questioning
the size of such a programme.
Analysts say there was still room for further appreciation,
particularly for the zloty and the forint, as they still have not
returned to levels seen before the global crisis.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.618 24.646 +0.11% +6.91%
Polish zloty <EURPLN=> 3.964 3.933 -0.78% +3.53%
Hungarian forint <EURHUF=> 275.31 274.93 -0.14% -1.8%
Croatian kuna <EURHRK=> 7.343 7.34 -0.04% -0.46%
Romanian leu <EURRON=> 4.273 4.271 -0.05% -0.83%
Serbian dinar <EURRSD=> 107.09 106.93 -0.15% -10.47%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -9 basis points to 69bps over bmk*
7-yr T-bond CZ7YT=RR +17 basis points to +87bps over bmk*
10-yr T-bond CZ9YT=RR +8 basis points to +103bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -1 basis points to +372bps over bmk*
5-yr T-bond PL5YT=RR -6 basis points to +340bps over bmk*
10-yr T-bond PL10YT=RR 0 basis points to +310bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +4 basis points to +550bps over bmk*
5-yr T-bond HU5YT=RR -1 basis points to +508bps over bmk*
10-yr T-bond HU10YT=RR +5 basis points to +453bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1740 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Marton Dunai and Jason Hovet; editing by
Stephen Nisbet, John Stonestreet, Susan Fenton)
