* FX regain some losses from heavy drop in pvs session
* Investors cautious as Latvia devaluation worry stays
* Hungarian, Romanian bond sales due
(Adds details, bonds)
By Jason Hovet
PRAGUE, June 4 (Reuters) - Central Europe's currencies rose
on Thursday, clawing back some of the heavy losses suffered in
the previous session, but investor worry over a possible
currency devaluation in Latvia kept pressure on the region.
Market speculation has built that the Baltic state may be
forced to devalue its currency against the euro, highlighting
vulnerabilities in east Europe as the world economy tries to
pull itself out of the worst economic downturn in decades.
Hungary's forint <EURHUF=> edged up 0.3 percent on the day
to 286.01 per euro after dropping 2 percent in the previous
session to lead the fall in central Europe.
In Romania, the leu <EURRON=> inched 0.1 percent up to
4.205. Poland's zloty <EURPLN=> gained 0.3 percent from
Wednesday's domestic close, bidding at 4.505 to the euro, while
the Czech crown <EURCZK=> was steady at 0906 GMT.
"There was an overreaction yesterday, and we are seeing a
natural correction from that," a London-based dealer said.
Hungary and Romania, like Latvia, have reached out for
International Monetary Fund-led aid packages to plug financing
gaps, and some analysts fear the IMF allowing Latvia to devalue
could change aid strategies in other bailout countries.
The IMF and European Commission were set to make statements
on Latvia's budget efforts later in the day, and the Latvian lat
<EURLVL=> firmed ahead of this. []
Currencies in the region have stabilised in an emerging
market risk rally seen since March, which has boosted the zloty
and forint around 10 percent in that time.
However, flows to east Europe have not kept up with emerging
peers, and many strategists have expected a return to weakening
as the lagging effects of the global downturn, like rising
joblessness and widening budget gaps, work through economies.
NO DIRECT LINK
Borrowers in Hungary, Romania, and to some extent Poland are
exposed to foreign currency loans like Baltic households, but
trade between central Europe and the Baltics is limited.
And central European currencies are freely-floating,
although drops in currencies of up to a quarter in the past year
have raised borrowing costs for foreign currency loan holders.
"(Latvian devaluation) would raise the risk perception to
the region and this psychological effect would have a negative
impact on currencies," Commerzbank head of foreign exchange
research Ulrich Leuchtmann.
Financing concerns are still in investors' view, and a
short-term debt auction failed in Latvia on Wednesday.
A Danske Bank note Thursday recommended caution in central
and eastern European markets, but also said the Baltics' direct
link to others like Poland, Hungary and Romania is very limited.
"(But) it is only natural that concerns over the situation
in Baltic States triggers renewed concerns regarding the
position in Central and Eastern Europe where many countries to a
greater or lesser extent face problems similar to those in the
Baltics," Danske said.
Polish and Czech bond auctions still met healthy demand for
their debt on Wednesday, and markets were eying auctions in
Hungary and Romania on Thursday.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.865 26.854 -0.04% -0.42%
Polish zloty <EURPLN=> 4.505 4.52 +0.33% -8.66%
Hungarian forint <EURHUF=> 286.01 286.72 +0.25% -7.85%
Croatian kuna <EURHRK=> 7.353 7.353 0% +0.16%
Romanian leu <EURRON=> 4.205 4.207 +0.05% -4.53%
Serbian dinar <EURRSD=> 94.21 94.14 -0.07% -5.02%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -27 basis points to 126bps over bmk*
4-yr T-bond CZ4YT=RR -3 basis points to +156bps over bmk*
8-yr T-bond CZ8YT=RR -6 basis points to +275bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -8 basis points to +404bps over bmk*
5-yr T-bond PL5YT=RR -11 basis points to +318bps over bmk*
10-yr T-bond PL10YT=RR -9 basis points to +272bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1107 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Jason Hovet; Editing
by Toby Chopra)
