(Adds details, fixed income, byline)
By Dagmara Leszkowicz
WARSAW, Oct 14 (Reuters) - Hungary's forint and Poland's
zloty led gains in emerging Europe on Tuesday following a jump
the day before, with euro zone plans to shore up banks giving a
shot of confidence to markets.
Poland's zloty <EURPLN=> was 1.4 percent up to the euro to
3.499 by 0903 GMT, while Hungary's forint rose 0.7 percent to
252.55 per euro.
The Romanian leu <EURRON=> rose 0.6 percent against the euro
to 3.764, while the Czech crown <EURCZK=> was 0.4 percent up at
24.648 but dealers saw more strengthening in the day.
Traders said stock markets holding on to Monday gains will
be important for currencies, and a sign of confidence.
"So far the sentiment is being set by stocks," said Jan
Koprowski, a dealer at BNP Paribas in Warsaw.
Markets on Monday cheered plans worked out over the weekend
by euro zone governments to provide funds to lenders cut out of
frozen credit markets.
In Poland, analysts said the central bank's Monetary Policy
Council (MPC) decision to use currency swaps as one of the tools
to boost local banks' liquidity is likely to improve sentiment
on the money market further.
Stocks saw a global rally on Monday, and the Nikkei in Tokyo
jumped 14 percent overnight after re-opening on Tuesday. In
central Europe, bourses held on to Monday's gains in morning
trade on Tuesday.
"The clouds have not fully dispersed, although sentiment is
a tad more favourable," a Budapest-based FX dealer said.
Still, a scramble for cash hit Serbia's dinar <EURRSD=>,
which fell 0.8 percent to 81.97 on Tuesday, after Serbia's
central bank sold 60 million euros on Monday, trying to slow
declines in the currency as banks look to buy euros.
The currency has lost almost 7 percent since the beginning
of October. "It's still early in the day for client demand, but
there is a liquidity squeeze, banks are dumping repos, buying
euros and hedging their capital," a local currency dealer said.
In other trade, the Slovak crown <EURSKK=>, set to disappear
in January when the country swaps it for euros, rebounded to
around the 30.44 per euro level along with regional currencies
after weakening last week to as low as 30.77.
The normally quiet crown had got hit in sell-offs last week,
moving away from normal levels just above its euro conversion
rate of 30.126.
ILLIQUID BOND MARKET
Many analysts now say growth risks trump inflation risks in
central Europe. On Tuesday, investors were eyeing price growth
data, and while the impact is limited on currencies, it could
add support for bond markets that remain illiquid.
In Hungary, inflation slowed to a two-year low, although the
central bank will likely hold off on any interest rate moves for
now []. In Poland, where interest rates were seen
being tightened just last month, central bankers signalled on
Tuesday that rates may have peaked [].
Dealers said investors are not keen on buying paper and
using every single price rise to sell it.
"This is not a matter of trade risk. It is a case of overall
instability," said a dealer at Warsaw-based bank.
The Czech Finance Ministry cancelled on Monday a 3-year bond
<CZ3YT=RR> auction scheduled for this week, but dealers said the
impact hasn't been felt yet.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2008
Czech crown <EURCZK=> 24.648 24.750 +0.41% +6.98%
Polish zloty <EURPLN=> 3.499 3.550 +1.44% +2.82%
Hungarian forint <EURHUF=> 252.550 254.350 +0.71% +0.12%
Croatian kuna <EURHRK=> 7.153 7.140 -0.18% +2.37%
Romanian leu <EURRON=> 3.764 3.785 +0.55% -5.13%
Serbian dinar <EURRSD=> 81.97 81.288 -0.84% -4.08%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +19 basis points to 46bps over bmk*
5-yr T-bond CZ5YT=RR +15 basis points to +34bps over bmk*
10-yr T-bond CZ9YT=RR 0 basis points to +31bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -24 basis points to +288bps over bmk*
5-yr T-bond PL5YT=RR -15 basis points to +230bps over bmk*
10-yr T-bond PL10YT=RR -1 basis points to +209bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1103 CET.
Currency percent change calculated from the daily domestic
close at 1500 GMT.
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(Reporting by Reuters bureaus; Writing by Dagmara
Leszkowicz; Editing by Chris Pizzey)
