(Updates prices, comments)
By Jason Hovet
PRAGUE, Oct 7 (Reuters) - Central Europe's emerging
currencies rebounded higher on Tuesday, led by Romania's leu,
while Serbia's central bank sold euros in the market for a third
day to prop up the sliding dinar.
With questions hanging over the health of the global banking
system, the spread of the crisis to Iceland, and ex-communist
Europe's underlying economic fundamentals, trading was choppy
and uneven, dealers and analysts said.
"It just proves how dependent the currencies of the region
are on global factors," said Ulrich Leuchtmann, head of foreign
exchange research at Commerzbank in Frankfurt. "At the same time
it shows how countries have different exposure."
In Serbia, dealers said the central bank stepped in again to
lift the dinar <EURRSD=> when it hit a three-month low at 80.55
to the euro, after selling 40 million euros on Monday.
By late trade it had returned to 79.91, or 0.7 percent down
on the day, and has shed more than four percent in the past
three trading days, hit by global sales of emerging market
assets while local firms buy hard currency to pay for imports.
"We think that further interventions might be possible to
avoid a sharp depreciation," Raiffeisen analysts wrote.
The Czech crown <EURCZK=>, seen as a relatively safe bet due
to the country's strong fundamentals, jumped 0.86 percent to
24.562 by 1409 GMT, reversing course after failing to break
above 25, dealers said.
The Polish zloty <EURPLN=> also gained and traded firmer by
0.95 percent at 3.426, helped by assurances from the finance
minister that euro adoption plans are on track [].
Investors have raised red flags around Romania and Hungary
due to heavy exposure to foreign currency debt and Romania's
wide external deficit, with both falling sharply in recent days.
Barclays Capital on Tuesday recommended buying Hungarian
five-year credit default swaps, saying that the swap spread
could widen in the backdrop of rising global market risks and
the country's weak fundamentals and political risks[].
Romania's leu <EURRON=> rebounded from a 2 percent loss on
Monday to gain 1.26 percent, to 3.920 per euro, in yo-yo
trading, helped by euro sales by some exporters.
The forint also rebounded in tandem with the region and
traded at 250.40 to the euro, firmer by 0.34 percent, but
dealers warned that the market would remain fragile.
Worse-than-expected production data out of Romania and
Hungary [] on Tuesday illustrated that a collapse in
the euro zone's demand for east European exports has worsened
economic growth prospects.
"The Romanian leu should thus continue to be one of the
weaker currencies, while the Czech koruna is apt to remain the
'Swiss franc of Eastern Europe'," Commerzbank said in a note.
East Europe's stocks also slid on Tuesday, with Bucharest's
blue chip index <> touching a fresh year low, while
Prague's PX <> dove to a 3-1/2 year low.
Bank UBS also said it had slashed its growth forecasts for
emerging Europe due to tightening credit conditions that those
countries with large external deficits were most at risk.
"These countries are likely to find it increasingly
difficult to attract the necessary external funding in an
environment of low international risk appetite and clogged
credit markets," UBS said in a report.
Polish government bonds remained stable, awaiting a 10-year
government bond tender on Wednesday, but dealers said the market
has started to price in a cut in interest rates.
Just last month, when Poland surprisingly announced its aim
for euro adoption in 2012, earlier than expected, analysts had
expected at least one more hike to counter inflation concerns.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2008
Czech crown <EURCZK=> 24.562 24.775 +0.86% +7.3%
Polish zloty <EURPLN=> 3.426 3.459 +0.95% +4.85%
Hungarian forint <EURHUF=> 249.550 250.400 +0.34% +1.31%
Croatian kuna <EURHRK=> 7.134 7.121 -0.18% +2.63%
Romanian leu <EURRON=> 3.920 3.970 +1.26% -9.49%
Serbian dinar <EURRSD=> 79.908 79.348 -0.71% -1.46%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR -10 basis points to 31bps over bmk*
5-yr T-bond CZ5YT=RR -6 basis points to +22bps over bmk*
10-yr T-bond CZ9YT=RR -2 basis points to +31bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -5 basis points to +297bps over bmk*
5-yr T-bond PL5YT=RR +3 basis points to +254bps over bmk*
10-yr T-bond PL10YT=RR +5 basis points to +212bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -13 basis points to +679bps over bmk*
5-yr T-bond HU5YT=RR -9 basis points to +640bps over bmk*
10-yr T-bond HU10YT=RR -7 basis points to +490bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1609 CET.
Currency percent change calculated from the daily domestic
close at 1500 GMT.
(Reporting by Reuters bureaux, writing by Jason Hovet and
Sandor Peto in Budapest; editing by Patrick Graham)
