* Hungarian bond yields drop on fiscal reform expectations
* Polish zloty leads forex gains on Moody's rating comments
(Updates prices, adds details)
By Radu Marinas and Jana Mlcochova
BUCHAREST/PRAGUE, Feb 25 (Reuters) - Emerging European
currencies shed some of their early gains on Friday as they
tracked a weaker euro, although they held firmer on the day,
lead by the zloty.
The dollar climbed to a session high versus the euro, the
region's main reference currency, boosted by a retreat in oil
prices and news that U.S. consumer sentiment rose to its highest
in three years in February.
Crude oil prices eased after Saudi Arabia boosted oil output
to calm fears of supply disruptions sparked by turmoil in Libya.
"There is a light consolidation with the dollar but volumes
are very thin," a Prague-based dealer said.
Analysts said the Polish zloty <EURPLN=> was supported by
comments from ratings agency Moody's that Poland's A2 rating was
safe until national elections due in October. []
"Poland is one of the first countries to tighten monetary
policy ... We think at the moment the policy framework, the
institutional framework, is credible," Anthony Thomas, Moody's
chief analyst for Poland, told Reuters in an interview.
However, the zloty could remain under pressure after briefly
dipping through the psychologically key 4.0 level against the
euro on fading expectations of an early rate hike.
"Since the resumption of a tightening cycle is in the air,
the room for prospective losses should be limited," KBC said in
a note.
By 1623 GMT, the zloty had firmed 0.4 percent and the forint
<EURHUF=> was also up by 0.4 percent, while the Czech crown
<EURCZK=> was 0.1 percent stronger.
The Romanian leu <EURRON=> strengthened 0.3 percent and was
bid at 4.217 to the euro after hitting a six-month high earlier
on Friday.
REFORMS IN SPOTLIGHT
Hungary's bonds firmed steeply on Friday, with yields down
some 20 basis points as the market geared up for what investors
hope will be substantial fiscal reform announcements on Tuesday,
a bond dealer said in Budapest.
But investors expect the reforms to keep the country's
budget deficit under 3 percent over the long haul, and will
scrutinise the package to see if it is sustainable.
[]
"Everyone is preparing for the announcement," a Budapest
dealer said. "Plus, after a single investor bought up all of the
bonds at Thursday's auction, supply is pretty low as well. We
are set for more gains, and that might trigger short covering
... More gains ahead unless the government disappoints."
Within the region the Czech crown is seen outperforming its
peers if global sentiment becomes more risk-averse as the
currency is traditionally seen as the region's safe haven,
analysts say.
"Furthermore, the correction due after the (crown's) swift
appreciation at the beginning of the year against EUR has
happened already," Societe Generale said in a weekly emerging
markets report.
The Czech Finance Ministry revealed further details of a
planned pension reform, proposing looser regulation for
so-called third pillar pension funds in a move which is seen to
boost market liquidity. []
The crown has lost 2.4 percent since hitting a 27-month high
at the beginning of February, but has still gained more than 2
percent since the start of the year.
"We stick to our short-term target of 24.71 and believe
the koruna should stay in a defensive mode even if the risk
attitude may somewhat improve during Friday," said KBC.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2011
Czech crown <EURCZK=> 24.466 24.493 +0.11% +2.18%
Polish zloty <EURPLN=> 3.975 3.99 +0.38% -0.43%
Hungarian forint <EURHUF=> 272.45 273.4 +0.35% +2.03%
Croatian kuna <EURHRK=> 7.421 7.419 -0.03% -0.55%
Romanian leu <EURRON=> 4.217 4.23 +0.31% +0.38%
Serbian dinar <EURRSD=> 103.29 103.05 -0.23% +2.55%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -6 basis points to 17bps over bmk*
7-yr T-bond CZ7YT=RR -4 basis points to +86bps over bmk*
10-yr T-bond CZ9YT=RR -4 basis points to +85bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR 0 basis points to +510bps over bmk*
5-yr T-bond HU5YT=RR -1 basis points to +485bps over bmk*
10-yr T-bond HU10YT=RR -2 basis points to +429bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1708 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
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(Reporting by Reuters bureaux; Editing by Susan Fenton)
