* Fed bond buying programme sends more cash to EM
* Zloty, forint to benefit most; Warsaw stocks at 2-yr high
* Czechs keep rates on hold; CEE rate rise seen slower
* Romania signals it may scrap yield cap
(Updates crown price, adds IRS drop)
By Jason Hovet and Marius Zaharia
PRAGUE/BUCHAREST, Nov 4 (Reuters) - The Czech crown hit a
two-year high on Thursday and Warsaw blue-chips reached a
similar peak, as emerging Europe gained after the U.S. Federal
Reserve opened the way for more money flows into global markets.
The Fed committed to buy $600 billion in U.S. Treasury bonds
in a second round of quantitative easing (QE2) to support the
U.S. economy -- a move seen driving money into emerging markets
as investors chase higher growth and yields. []
This size of the Fed move had mostly been priced into
markets but still boosted emerging European stocks and
currencies, led by the Polish zloty.
Romania, though, struggled to hold its six-month-old yield
cap strategy at a debt auction, selling fewer 3-year treasury
bonds than planned, with the average yield rising 30 basis
points to 7.1 percent. [].
Analysts had expected it to struggle to hold a 7 percent
self-imposed ceiling this month when it faces a a financing
peak.
"This is an expected development, a positive one, though I
think the ministry would start paying much more in the near
term," said economist Vlad Muscalu of ING Bank in Bucharest.
RATES ON HOLD
The Czech crown <EURCZK=>, which has led central European
currency gains this year, was stuck in a range for the last
month before breaking out on Thursday with a half percent gain
to its highest since November 2008.
It later retreated back to the 24.500 level where it started
and dealers cited euro buying by London players.
The zloty <EURPLN=> rose 0.5 percent to bid at 3.907, a
2-1/2 week high. The Hungarian forint <EURHUF=> also rose before
retreating to dip 0.2 percent on the day. The two are likely to
benefit the most from the yield hunt in emerging Europe.
Latin American and Asian policymakers vowed on Thursday to
use fresh measures to curb capital inflows. []
Emerging European policymakers are not expected to follow
their lead as currencies still have not fully recovered from the
economic crisis that started two years ago. But QE2 will limit
scope for central banks that are close to hiking interest rates,
such as Poland and to some extent the Czech Republic.
The Czech central bank kept rates at record lows on Thursday
as expected but surprised by pushing back the expected start of
rate hikes toward the end of the next year while cutting its
2011 growth forecast to lower than 2010. []
One-year interest rate swaps <CZKAM3PR1Y=> fell up to 8
basis points and were quoted at 1.30/35 percent by 1600 GMT.
BNP Paribas had recommended going short on the euro versus
the crown before the meeting as policymakers would likely be
tolerant, and the government was driving fiscal tightening.
The Czech government has pushed an austere 2011 budget,
which has raised its outlook in the eyes of ratings agencies.
Hungary has also introduced a tighter budget for next year,
but Standard & Poor's kept the country's outlook on negative on
Wednesday and warned of future budget risks. []
The country sold more bonds than planned at its first tender
since its 2011 budget announcement, with yields rising.
Bank BPH said QE2 and a likely delay in European Central
Bank rate tightening could lead to strong zloty gains that would
hurt economic recovery and put pressure on the central bank.
Polish policymakers left interest rates at a record low 3.5
percent last week, but did raise the reserve requirement rate.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.51 24.475 -0.14% +7.38%
Polish zloty <EURPLN=> 3.907 3.927 +0.51% +5.04%
Hungarian forint <EURHUF=> 272.65 272.21 -0.16% -0.84%
Croatian kuna <EURHRK=> 7.34 7.34 0% -0.42%
Romanian leu <EURRON=> 4.288 4.294 +0.14% -1.18%
Serbian dinar <EURRSD=> 107.2 107.6 +0.37% -10.56%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -9 basis points to 78bps over bmk*
7-yr T-bond CZ7YT=RR +2 basis points to +95bps over bmk*
10-yr T-bond CZ9YT=RR +7 basis points to +116bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +6 basis points to +547bps over bmk*
5-yr T-bond HU5YT=RR +2 basis points to +515bps over bmk*
10-yr T-bond HU10YT=RR +1 basis points to +456bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +1 basis points to +380bps over bmk*
5-yr T-bond PL5YT=RR -2 basis points to +358bps over bmk*
10-yr T-bond PL10YT=RR -3 basis points to +319bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1714 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
For related news and prices, click on the codes in brackets: All
emerging market news []
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Eastern Europe spot FX <EEFX=> Middle East spot FX <MEFX=>
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(Reporting by Reuters bureaus, writing by Jason Hovet and
Marius Zaharia; Editing by Ruth Pitchford/Sujata Rao)
