* FX up after recent retreat, dealers see room to gain
* Hungary 3-yr bond yield at five-year low on rate outlook
* Consumer data in focus in Czech, Polish markets
(Adds fixed income, details, quote)
By Dagmara Leszkowicz
WARSAW, March 16 (Reuters) - Emerging European currencies
rose on Tuesday, drawing support from higher stock markets,
while Hungarian three-year bond yields dropped to their lowest
in five years on expectations of an interest rate cut.
Hungary is expected to cut rates from a record low of 5.75
percent at the end of this month, and with Romania is one of the
last countries in the region to continue with monetary easing.
Expectations for a cut have boosted the country's debt, with
bond yields falling along the short end. The three-year bond was
quoted with a 6.2 percent yield on Tuesday.
"The direction is still downwards. Foreign investors have
been picking Hungarian papers and this will continue if no bad
news comes," said one Budapest-based fixed-income dealer.
"Also the (Hungarian) central bank can cut its interest
rates further later this month as the forint is very strong."
The forint <EURHUF=> hovered near five-month highs, bid up
0.4 percent at 263.7 per euro. The Czech crown <EURCZK=> was
steady and Romania's leu <EURRON=> was also flat.
The Polish zloty <EURPLN=> rose 0.6 percent to 3.87 against
the euro at 1105 GMT, but was about half a percent off a
15-month high hit last week.
The long zloty/crown cross trade has been a favourite among
investors in the region as they used the Czech unit's lower
rates for funding purposes. But dealers said investors have
exited the trade in recent sessions.
"We're observing this (closing positions on PLN/CZK) for a
couple of days," said one Warsaw-based dealer.
Local stocks also firmed, rising some 0.6-1.4 percent across
the region.
RETAIL SALES FALL
Strategists expect a modest economic recovery fuelled by
renewed export demand will lift currencies this year. But
consumer demand in the region is expected to remain fragile.
Data showed Czech retail sales fell 5 percent year-on-year
in January, a much bigger drop than forecast. []
Analysts said it could prompt the central bank, which had
been expected to raise interest rates in the second half of the
year, to stay on hold for longer.
In Poland, where interest rates are also seen rising this
year, markets are looking to February wage and employment data
due at 1300 GMT.
A Polish central banker said on Tuesday the bank should
start raising rates at the end of 2010 as inflation is likely to
pick up next year. []
The zloty has led a market rally in central Europe this year
as investors favour the region for its better growth prospects
than some western peers and as they worry about the debt burdens
of countries on the euro zone periphery.
But policymakers have begun to fret that strong currencies
could harm economic recovery. Dealers and analysts said there
was scope for further appreciation in the region despite a
retreat over the past week.
"There is no real demand in the market but all factors are
positive, the region is holding strong, stocks are up which is
all supportive," one Budapest-based dealer said.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.484 25.475 -0.04% +3.27%
Polish zloty <EURPLN=> 3.871 3.896 +0.65% +6.02%
Hungarian forint <EURHUF=> 263.7 264.7 +0.38% +2.52%
Croatian kuna <EURHRK=> 7.263 7.263 0% +0.64%
Romanian leu <EURRON=> 4.086 4.086 0% +3.71%
Serbian dinar <EURRSD=> 99.72 99.79 +0.07% -3.85%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +4 basis points to 82bps over bmk*
7-yr T-bond CZ7YT=RR -3 basis points to +113bps over bmk*
10-yr T-bond CZ10YT=RR -4 basis points to +99bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -11 basis points to +483bps over bmk*
5-yr T-bond HU5YT=RR -4 basis points to +428bps over bmk*
10-yr T-bond HU10YT=RR -6 basis points to +401bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1208 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
For related news and prices, click on the codes in brackets:
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(Reporting by Reuters bureaus, Writing by Dagmara
Leszkowicz; Editing by Susan Fenton)
