(Recasts with new details, prices, comments.)
By Dagmara Leszkowicz and Sandor Peto
WARSAW/BUDAPEST, Oct 14 (Reuters) - Hungary's forint and
Poland's zloty led gains in emerging Europe on Tuesday as plans
in the euro zone and in the region to improve liquidity in the
banking system are giving a shot of confidence to markets.
"The measures announced over the week-end... and today seem
to improve sentiment and this shows up in the gains of bourses,
the forint or the zloty," said Eszter Gargyan, analyst at
Citigroup in Budapest.
"There is a very strong link between the prospects of the
banking system and market developments, it's key to the exchange
rate and the real economy that the interbank market and swap
market consolidates," she added.
Poland's zloty <EURPLN=> was 2.59 percent up to the euro at
3.458 by 1224 GMT, while Hungary's forint rose nearly two
percent to 249.65.
The Romanian leu <EURRON=> firmed 0.55 percent against the
euro to 3.764, while the Czech crown <EURCZK=> was 0.57 percent
up at 24.609.
Markets this week have cheered plans worked out over the
weekend by euro zone governments to provide funds to lenders cut
out of frozen credit markets.
Central banks in the region introduced their own measures to
improve market liquidity.
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.
The Czech central bank said on Tuesday that it would start
repo operations to supply liquidity and would allow domestic
government bonds to be used as collateral.
At an overnight fx swap tender, Hungary's central bank
allocated 35 million euros to commercial banks.
Meanwhile, both Hungary and Poland reported a fall in annual
inflation rates in September from August, to 5.7 percent from
6.5 percent, and to 4.5 percent from 4.8 percent, respectively.
But analysts said investors were focusing on financial
stability and the figures were unlikely to trigger interest rate
cuts, therefore they did not affect the currencies.
"The factors that mostly influence short-term MPC decisions
will be the financial markets and banking situation," said
Marcin Mroz, Chief Economist at Fortis bank in Warsaw.
Central European stocks also surged, with Poland's WIG
<> index firming by 4.54 percent by 1258 GMT, the Czech PX
<> by 11.34 percent and Hungary's BUX<> by 7.3 percent.
Still, a scramble for cash hit Serbia's dinar <EURRSD=>,
which fell 0.76 percent to 81.908 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.
Croatia's kuna shed 0.18 percent to 7.153.
Analysts said there were some signs which warned that the
optimism in markets may not be lasting as the global financial
crisis still carries threats to market liquidity and economic
growth in the region.
Hungary cut its three-month Treasury bill auction by 10
billion forints to 35 billion forints due to low demand
[] and Croatia raised only 75 million kunas at its
own Treasury bill auction, 125 million kuna less than its
targeted amount.[]
ILLIQUID BOND MARKET
Many analysts now say growth risks trump inflation risks in
central Europe.
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=> 24.609 24.750 +0.57% +7.13%
Polish zloty <EURPLN=> 3.458 3.550 +2.59% +3.96%
Hungarian forint <EURHUF=> 249.650 254.350 +1.85% +1.27%
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=> 81.908 81.288 -0.76% -4.00%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +19 basis points to 47bps over bmk*
5-yr T-bond CZ5YT=RR +15 basis points to +34bps over bmk*
10-yr T-bond CZ9YT=RR +1 basis points to +32bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -26 basis points to +287bps over bmk*
5-yr T-bond PL5YT=RR -15 basis points to +231bps over bmk*
10-yr T-bond PL10YT=RR 0 basis points to +209bps over bmk*
*Benchmark is German bond equivalent.
All currency data taken from Reuters at 1424 CET.
All bond data taken from Reuters at 1103 CET.
Currency percent change calculated from the daily domestic
close at 1500 GMT.
(Reporting by Reuters bureaus; Writing by Dagmara
Leszkowicz/Sandor Peto; Editing by Victoria Main)
