(Adds details, fixed income)
PRAGUE, Nov 11 (Reuters) - Central Europe's emerging
currencies lost ground against the euro on Tuesday as global
stock markets turned down on recession fears, but dealers
expected trade to stabilise after heavy falls in the past month.
The Czech crown <EURCZK=> was off 0.5 percent at 25.38 to
the euro despite better than expected industrial output data
[], and Hungary's forint <EURHUF=> fell to 268.6 per
euro, down 0.5 percent, as trade remained thin, dealers said.
"The (weakening) trend is still intact, so buying dips still
makes sense," a Prague currency dealer said. "We're not out of
the woods yet."
The region's currencies tend to fall if global risk appetite
retreats, weakening demand for higher-yielding emerging market
assets.
Romania's leu <EURRON=> fell 0.6 percent to 3.77 to the euro
by 0953 GMT, extending losses from Monday when Fitch cut its
sovereign rating to "junk" status. The Polish zloty <EURPLN=>
fell around 2 percent to 3.79 in illiquid trade as domestic
markets were shut for a holiday.
Growing economic gloom overshadowed the positive impact of
China's $600 billion spending package on Tuesday, sending global
markets lower. Prague's stock index <> lost 2 percent, while
Budapest <> more than 5 percent.
Slowing euro zone demand has hit the region's fast-growing
economies, with the Baltic States and Hungary already headed for
or in recession. The Czechs last week slashed interest rates,
and Poland's central bank chief has urged policy loosening.
A surprise slight pick up in Romania's inflation, however,
limited chances of quick policy easing. []
In Hungary, which Fitch also downgraded on Monday, data on
Tuesday showed October inflation slowed to its lowest level in
two years, and analysts said the central bank could begin
loosening monetary policy if sentiment improved [].
Hungary's central bank hiked interest rates 300 basis points
to 11.5 percent in October to defend the forint as concerns over
Hungary's banks smacked regional markets, pushing the government
to seek International Monetary Fund help.
"I expect the forint to stabilise ... as most things have
been priced in; government bond yields are high, while FRAs have
started to come down," a Budapest currency dealer said.
Money market rates in the Czech Republic have also eased.
Fitch was the second agency to cut Romania to non-investment
grade, underlining investor concern over some central European
countries' high debt, part of what has rattled markets in the
last month.
The forint has lost 9.6 percent since Oct. 1 after losing as
much as 15 percent at one point in October. The zloty is off
10.6 percent, and the Czech crown 6.7 percent. The leu has eked
out a 1.2 percent gain, helped by central bank activity.
Regional bond markets also mostly seized up last month, and
on Tuesday Czech bond prices were a tick higher, while Hungarian
bonds moved sideways in still thin activity, dealers said.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2008
Czech crown <EURCZK=> 25.384 25.247 -0.54% +4.2%
Polish zloty <EURPLN=> 3.791 3.715 -2.05% -5.29%
Hungarian forint <EURHUF=> 268.580 267.270 -0.49% -6.22%
Croatian kuna <EURHRK=> 7.135 7.152 +0.24% +2.61%
Romanian leu <EURRON=> 3.774 3.750 -0.64% -5.41%
Serbian dinar <EURRSD=> 85.193 84.830 -0.43% -8.17%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR -10 basis points to 115bps over bmk*
5-yr T-bond CZ5YT=RR -7 basis points to +128bps over bmk*
10-yr T-bond CZ9YT=RR -16 basis points to +82bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +1 basis points to +1000bps over bmk*
5-yr T-bond HU5YT=RR +3 basis points to +948bps over bmk*
10-yr T-bond HU10YT=RR +4 basis points to +586bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1059 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 Tony Austin)
