* 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 Localclose 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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