* Forint trims gains, other FX down after stocks fall
* Hungary's yield curve steepens further
(Updates throughout)
By Dagmara Leszkowicz and Marius Zaharia
WARSAW/BUCHAREST, Nov 17 (Reuters) - Hungary's forint was
flat on Tuesday, kept near three-week highs by higher yields
compared with its peers, which were weakened slightly by a
pullback in stocks after last week's rally.
Better than expected economic data in some central European
countries last week has increased appetite for regional assets,
launching a rally, but some profit taking in stock markets on
Tuesday sent currencies slightly weaker.
The main gainer from the improvement in investors' mood was
the forint, despite weaker GDP data than in other countries,
mainly because of a higher interest rate differential in Hungary
compared with Poland or Czech Republic.
"Some big banks have come to the decision that it's worth
buying the forint to exploit the (relatively high) carry," one
Budapest-based dealer said.
At 1449 GMT the forint <EURHUF=> was 0.16 percent up against
the euro, while the zloty <EURPLN=> was 0.3 percent weaker, the
crown <EURCZK=> was 0.1 percent down with domestic markets
closed for holiday, and Romania's leu <EURRON=> was flat.
Regional stocks were down by up to 1 percent.
Hungary's main rate stands at 7.0 percent and is seen moving
lower next week, especially after Tuesday's wage data showed
moderate growth in September [].
Despite prospects for easing, rates are still high compared
with 3.5 percent in Poland and 1.25 percent in Czech Republic.
Romania offers higher premium for investors than Hungary,
but the leu has been under pressure from a political deadlock
that started with the collapse of the government in October and
is expected to last until after a two-round presidential
election that starts on Sunday and ends on Dec. 6.
The election is key as the next president's main task is to
form a government that could resume talks with the International
Monetary Fund, which has frozen further aid tranches over the
lack of government and now Romania faces financing difficulties.
The central bank jumped in to help the ministry find
financing resources on local markets on Monday by cutting
reserve requirements on foreign currency-denominated liabilities
to 25 percent from 30 percent previously. []
HUNGARY'S YIELD CURVE
Hungary's yield curve steepened further, indicating that
short-term rate cut expectations are coupled with longer-term
uncertainty over fiscal policy after next year's polls.
The spread between 3- and 10-year bond yields, which
narrowed to about 15 basis points last month when the forint hit
nine-month highs, widened to 42 basis points by Tuesday.
Traders hold mixed views about the trend of the yield curve,
with some seeing weakening risks for the forint that will deter
expectations for monetary easing.
Three-year bond yields dropped by 2 basis points on Tuesday,
while 5-year yields dipped 12 points and 10-year paper was flat.
Elsewhere, Polish paper was stable, with only longer-dated
bonds edging up ahead of Wednesday's road bond tender.
Despite Tuesday's weakening, markets say the zloty was set
for an outperformance if GDP figures on Nov. 30 give a final
confirmation of the country's success in avoiding recession.
"The direction for now is up, but it is evidently a
consolidation of recent gains," said one Warsaw-based dealer.
"I think GDP data may be a factor that can push the unit to
even below 4.0 to the euro."
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.497 25.465 -0.13% +4.93%
Polish zloty <EURPLN=> 4.101 4.087 -0.34% +0.34%
Hungarian forint <EURHUF=> 265.46 265.89 +0.16% -0.72%
Croatian kuna <EURHRK=> 7.313 7.309 -0.05% +0.71%
Romanian leu <EURRON=> 4.291 4.292 +0.02% -6.45%
Serbian dinar <EURRSD=> 94.392 94.29 -0.11% -5.2%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +5 basis points to 104bps over bmk*
7-yr T-bond CZ7YT=RR -1 basis points to +112bps over bmk*
10-yr T-bond CZ10YT=RR -1 basis points to +90bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -2 basis points to +370bps over bmk*
5-yr T-bond PL5YT=RR +3 basis points to +323bps over bmk*
10-yr T-bond PL10YT=RR +2 basis points to +283bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -3 basis points to +522bps over bmk*
5-yr T-bond HU5YT=RR -13 basis points to +453bps over bmk*
10-yr T-bond HU10YT=RR -1 basis points to +399bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1649 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, Writing by Dagmara Leszkowicz
and Marius Zaharia; editing by Andy Bruce)
