* Markets keep close eye on fiscal targets
* Polish zloty seen in firming trend - c.bank gov Belka
(adds fixed income, detail, quote)
By Marius Zaharia
BUCHAREST, June 11 (Reuters) - Central European stocks
firmed and currencies held on to previous gains on Friday,
helped by improved risk appetite that offset worries the region
will struggle to keep its budget deficits in check.
Dealers said the investor mood remained fragile and any sign
of a stepback in spending cuts across the region could trigger
renewed market jitters.
At 0909 GMT, the Czech crown <EURCZK=>, the Romanian leu
<EURRON=> and the Polish zloty <EURPLN=> were flat, while
Hungary's forint <EURHUF=> was a touch weaker.
Stocks gained 0.5-0.8 percent, catching up with currency
markets on gains propelled late on Thursday by a successful
Spanish bond auction and ECB pledges to keep liquidity flush
this year.
Worries about fiscal discipline in the region were
highlighted by an auction in which Hungary sold less than
planned on Thursday, which was a first market test following the
announcement of its new economic plan [].
"In terms of what's next we are not big fan (of the forint)
at the current levels as we think that some of the risks around
the (economic) package are still present," UniCredit said in a
morning note.
Analysts say the government must first deliver on budget
goals to regain investor confidence although the planned tax
cuts boost Hungary's growth and make it finances more
sustainable in the longer term [].
Polish yields dropped 2 basis points on Friday, while
Hungarian yields were flat.
RATES SEEN FLAT
Czech central banker Eva Zamrazilova said she could imagine
interest rates staying stable for some time but may consider a
hike if the economic recovery proved sustainable.
[]
"A quite clear indication that despite the last cut in May,
the MPC 's bias is gradually turning hawkish," 4Cast analysts
said. "Clearly though a rate hike is still very far ahead on the
agenda, especially with mounting evidence for economic slowdown
in Europe as fiscal correction starts."
Hungarian inflation slowed to 5.1 percent in May from 5.7
percent in April and compared to a 5.2 percent consensus
[], but budget worries may convince the central
bank to keep borrowing costs flat.
"Given the inflation outlook and remaining fiscal risks
until the 2011 deficit target is declared, we expect that the
MPC will keep rates on hold," Citigroup said in a note.
In Poland, newly appointed central bank Governor Marek Belka
said the zloty was on a firming trajectory that could last for
years and added that the current rate would be good for euro
adoption, although that remained a "theoretical issue"
[].
One of the key hurdles to joining the euro is a vast budget
deficit, which would drop below the 3 percent of GDP Maastricht
ceiling over the next 2-3 years, according to Finance Minister
Jacek Rostowski. []
A Czech auction saw rising yields on Thursday, while Romania
will have to swallow considerably higher yields if it wants to
accept any bid at a debt tender on Monday, a day before the
government faces a no-confidence vote over painful wage and
pension cuts. [] []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.725 25.725 0% +2.31%
Polish zloty <EURPLN=> 4.091 4.09 -0.02% +0.32%
Hungarian forint <EURHUF=> 278.89 278.65 -0.09% -3.06%
Croatian kuna <EURHRK=> 7.228 7.23 +0.03% +1.12%
Romanian leu <EURRON=> 4.215 4.216 +0.02% +0.53%
Serbian dinar <EURRSD=> 103.46 103.39 -0.07% -7.33%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +4 basis points to 163bps over bmk*
7-yr T-bond CZ7YT=RR +5 basis points to +168bps over bmk*
10-yr T-bond CZ9YT=RR +2 basis points to +160bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR 0 basis points to +414bps over bmk*
5-yr T-bond PL5YT=RR 0 basis points to +378bps over bmk*
10-yr T-bond PL10YT=RR -2 basis points to +316bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +2 basis points to +622bps over bmk*
5-yr T-bond HU5YT=RR +3 basis points to +575bps over bmk*
10-yr T-bond HU10YT=RR -1 basis points to +483bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1109 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, Writing by Marius Zaharia;
Editing by Toby Chopra)
