(Adds details, fixed income, byline)
By Jason Hovet
PRAGUE, Oct 7 (Reuters) - The Czech crown led a rebound in
emerging European Union currencies on Tuesday, but trade was
volatile over questions about the health of the global financial
sector and the region's underlying economic fundamentals.
Seen as a relatively safe currency due to the country's
strong fundamentals, the Czech crown <EURCZK=> jumped 1 percent
to 24.515 at 1026 GMT, after trading as high as 24.46 in thin
activity. The Polish zloty <EURPLN=> added 0.6 percent to 3.438
per euro.
Dealers said the crown move followed the unit's failure to
break weaker than the 25 per euro level over several days.
"After it failed to break up, the trend has turned by 180
degrees," a Prague dealer said.
The forint <EURHUF=> clawed its way to 248.9 per euro, up
0.6 percent from its previous close but off morning highs, and
the leu <EURRON=> was up 1.3 percent to 3.917 after yo-yo
trading, back near earlier gains.
Investors have raised red flags around Romania and Hungary
due to heavy exposure to foreign currency debt and Romania's
wide external deficit. The currencies lost 2 percent on Monday.
Another issue is underlying economic fundamentals that have
suffered particularly due to a collapse in the euro zone's
demand for east European exports -- a trend illustrated in
worse-than-expected production data out of Romania and Hungary
[] released earlier on Tuesday.
"The Romanian leu should thus continue to be one of the
weaker currencies, while the Czech koruna is apt to remain the
'Swiss franc of Eastern Europe'," Commerzbank said in a note.
In Serbia, where the central bank sold euros in the market
on Monday to lift the currency, the dinar <EURRSD=> lost almost
1 percent on the back of strong foreign demand for euros.
GLOBAL WORRIES
Global markets, hit by a widening financial crisis and
economic slowdown fears, got a shot of optimism from a surprise
1 percentage point interest rate cut in Australia overnight.
But fragile sentiment shattered as concerns grew over the
health of financial groups, with Royal Bank of Scotland <RBS.L>
shedding more than 30 percent in London on funding speculation.
In Iceland, authorities took over the country's second
largest bank, while its currency <ISK=> rebounded from a 35
percent drop after the central bank announced that Russia would
give the country of 300,000 a 4 billion euro loan to help it
weather a financial crisis.
"It's the same story: Panic coming from the financial
crisis, and stocks are going down," a Prague trader said.
Bucharest's blue chip index <> touched a fresh year low
on Tuesday, while Prague's PX <> dove to a 3-1/2 year low.
Bank UBS also said it had slashed its growth forecasts for
emerging Europe due to tightening credit conditions that those
countries with large external deficits were most at risk.
"These countries are likely to find it increasingly
difficult to attract the necessary external funding in an
environment of low international risk appetite and clogged
credit markets," bank UBS said in a report.
Polish government bonds remained stable on Tuesday, but
dealers said the market has started expecting a rate cut.
Just last month, when Poland surprisingly announced its aim
for euro adoption in 2012, earlier than expected, analysts had
expected at least another hike to counter inflation concerns.
"Expectations (of a rate cut) are getting stronger and it
looks the market expects a first cut in January 2009," a Warsaw
trader said.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2008
Czech crown <EURCZK=> 24.533 24.775 +0.98% +7.41%
Polish zloty <EURPLN=> 3.438 3.459 +0.61% +4.51%
Hungarian forint <EURHUF=> 248.900 250.400 +0.60% +1.56%
Croatian kuna <EURHRK=> 7.120 7.121 +0.01% +2.82%
Romanian leu <EURRON=> 3.917 3.970 +1.34% -9.41%
Serbian dinar <EURRSD=> 80.038 79.348 -0.87% -1.62%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +3 basis points to 45bps over bmk*
5-yr T-bond CZ5YT=RR -1 basis points to +28bps over bmk*
10-yr T-bond CZ9YT=RR +1 basis points to +33bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -3 basis points to +299bps over bmk*
5-yr T-bond PL5YT=RR +-1 basis points to +256bps over bmk*
10-yr T-bond PL10YT=RR +1 basis points to +207bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -20 basis points to +674bps over bmk*
5-yr T-bond HU5YT=RR -31 basis points to +628bps over bmk*
10-yr T-bond HU10YT=RR -22 basis points to +474bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1226 CET.
Currency percent change calculated from the daily domestic
close at 1500 GMT.
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(Reporting by Reuters bureaux, writing by Jason Hovet; editing
by Patrick Graham)
