* FX off previous highs, but sentiment still positive
* Next key level for the zloty at 3.8 vs euro
* Hungary's bonds extend gains, rate cut seen
(Adds fixed income, detail)
By Dagmara Leszkowicz
WARSAW, March 8 (Reuters) - Emerging Europe's currencies
trimmed early morning gains on Monday after the Czech crown
touched 3-month highs and Poland's zloty a 15-month peak, but
sentiment remained positive and further gains were possible.
At 1043 GMT the zloty <EURPLN=> and the crown <EURCZK=> were
both up 0.1 percent to the euro, though off early highs,
tracking gains in global markets following a better than
expected U.S. labour market report published on Friday.
Hungary's forint <EURHUF=> firmed 0.1 percent while
Romania's leu <EURRON=> was almost unchanged against the common
currency.
"It is positive sentiment that is lifting the region," said
one Warsaw-based dealer. "And the Polish zloty still remains
Central Europe's diamond, boosting other units."
The next key level for the zloty is 3.8 against the euro, he
added.
The region's stocks were also in the black on Monday, rising
by up to 1.5 percent. Prague's PX <> hit a 4-1/2 week high.
On the domestic front, Czech data showed foreign trade
posted a bigger than expected surplus in January, while the
country's unemployment rate rose to a 6-year high, but the data
had little impact on the crown. []
Central Europe's emerging markets have enjoyed a relatively
strong run this year and have also drawn support from the
positive reaction of investors to debt-ridden Greece's latest
austerity measures announced last week.
The zloty has already risen 6 percent since the start of the
year, outperforming its peers. The crown has added 3.1 percent
and the forint 1.5 percent against the euro.
A Reuters poll on Friday predicted gains for the crown and
the zloty over the next 12 months, while the forint is expected
to weaken slightly against the euro until after Hungary's
parliamentary elections in April. []
HIKES AND CUTS
Analysts also attribute the zloty's recent sharp gains
partly to comments from Monetary Policy Council (MPC) members
who signalled possible interest rate hikes later in the year.
Expectations for rate hikes have flattened the Polish bonds
curve in the past days, with 2-year bond yields up and
longer-dated papers down. The market was quiet on Monday, with
bond yields moving around their previous closing levels.
In Hungary, yields fell amid a continued rally in bond
prices triggered by hopes for a further interest rate cut and
overall improvement in risk appetite.
"Expectations for central bank monetary easing have been
around for a long time. But the middle and the long end of the
curve is bought now rather than the short end," said one
Budapest-based dealer.
Polish and Hungary's key interest rates stand now at
all-time lows of 3.5 percent and 5.75 percent respectively.
Analysts expect the 10-strong Polish MPC to raise rates to
4.0 percent by the end of the year, while in Hungary the central
bank is seen cutting rates by 25 basis points to 5.50 percent in
the coming months.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.638 25.662 +0.09% +2.65%
Polish zloty <EURPLN=> 3.875 3.877 +0.05% +5.91%
Hungarian forint <EURHUF=> 266.25 266.48 +0.09% +1.54%
Croatian kuna <EURHRK=> 7.258 7.255 -0.04% +0.71%
Romanian leu <EURRON=> 4.09 4.089 -0.02% +3.6%
Serbian dinar <EURRSD=> 99.56 99.59 +0.03% -3.7%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +7 basis points to 90bps over bmk*
7-yr T-bond CZ7YT=RR -2 basis points to +118bps over bmk*
10-yr T-bond CZ10YT=RR -2 basis points to +95bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -1 basis points to +408bps over bmk*
5-yr T-bond PL5YT=RR -2 basis points to +322bps over bmk*
10-yr T-bond PL10YT=RR -1 basis points to +281bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR 0 basis points to +512bps over bmk*
5-yr T-bond HU5YT=RR -2 basis points to +447bps over bmk*
10-yr T-bond HU10YT=RR -2 basis points to +2984bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1043 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
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(Reporting by Reuters bureaus, Writing by Dagmara
Leszkowicz; Editing by Ruth Pitchford)
