(Updates throughout)
BUDAPEST, Sept 18 (Reuters) - Most central European
currencies posted modest gains versus the euro on Thursday after
joint action by the world's top central banks to keep liquidity
flowing, but sentiment remained very fragile.
The measures were forced by a crisis of confidence on
financial markets after Lehman Brothers <LEH.N> filed for
bankruptcy protection, Merrill Lynch lost its independence and
the U.S. government bailed out insurer AIG.[]
The European Central Bank said on Thursday it joined forces
with the Fed and central banks of Canada, Switzerland, Japan and
Britain to boost liquidity in global financial markets.
The Czech crown <EURCZK=>, which led losses on Wednesday,
strengthened as a falling dollar <EUR=> gave support to regional
currencies.
"The correlation with the dollar is still strong," said Jiri
Skop, an analyst with Komercni Banka in Prague, adding more
dollar weakness in the short term would lend some support to the
market.
The retreat in the dollar also put a floor under Hungary's
forint <EURHUF=>, which recovered to levels around 242 versus
the euro late in the session from a three-month low at 245.90
earlier according to Reuters data.
"It has been a tense but quiet day. Everybody is doing what
is minimally required, covering their clients' flows, but
speculative money is now off the market," a Budapest-based
currency dealer said.
"I would think many investment banks are now busy dealing
with other matters which confine the forint to the sidelines,"
the trader said.
"Hedge fund activity has also greatly diminished, which may
have been a factor putting a floor under the forint," he said.
"However, the market is rather illiquid, trades are scarce and
spreads are still wide."
Hungarian government bond yields recovered from big falls
early in the session but were still about 10 basis points higher
across all maturities, traders said.
In Poland, data showed on Thursday that industrial output
<PLIPY=ECI> fell 3.7 percent year-on-year in August, coming in
below market expectations. PPI data also missed market
forecasts.
The data boosted bonds on increased expectations the economy
was slowing and the central bank may not be so hawkish on
interest rates in the coming months.
At the same time, the data failed to dent investor optimism
on the currency market, where the zloty <EURPLN=> has continued
to gain on prospects for Poland's euro adoption by 2012.
"On the one side we have local factors which are very
positive for bonds -- euro zone convergence helps the longer
dated bonds, output data support the closer end of the curve,"
said Maciej Slomka, chief dealer at Bank Pekao.
"On the other side global turbulence resulting from the fall
of Lehman Brothers has strongly lowered liquidity ... The market
is all about cutting down on risk."
The Romanian leu was weaker against the euro <EURRON=> in
late trade on Thursday but off a 3-month low hit earlier in the
day due to investors' lack of appetite for riskier emerging
assets, dealers said.
The Serbian dinar <EURRSD=> shed 0.4 percent in active
interbank trade on Thursday, with currency dealers citing strong
client demand for euros but also some foreigners selling dinars.
Banks were pricing the dinar in a 76.20-76.40/euro range at
1250 GMT, down from its 75.9527/euro close on Wednesday.
"We are not talking big numbers, but some foreign clients
were looking for euro liquidity," a senior currency dealer said
and added that strong corporate demand moved the dinar on
Thursday.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2008
Czech crown <EURCZK=> 24.02 24.129 +0.45% +9.35%
Polish zloty <EURPLN=> 3.339 3.357 +0.54% +7.26%
Hungarian forint <EURHUF=> 242.5 244.5 +0.82% +4.09%
Croatian kuna <EURHRK=> 7.119 7.109 -0.14% +2.83%
Romanian leu <EURRON=> 3.667 3.664 -0.08% -2.42%
Serbian dinar <EURRSD=> 76.43 76.287 -0.19% +2.96%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR -11 basis points to 13bps over bmk*
5-yr T-bond CZ5YT=RR -14 basis points to +10bps over bmk*
10-yr T-bond CZ9YT=RR -6 basis points to +25bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -8 basis points to +254bps over bmk*
5-yr T-bond PL5YT=RR -24 basis points to +213bps over bmk*
10-yr T-bond PL10YT=RR -13 basis points to +176bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -5 basis points to +575bps over bmk*
5-yr T-bond HU5YT=RR -8 basis points to +536bps over bmk*
10-yr T-bond HU10YT=RR +1 basis points to +413bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1600 CET.
Currency percent change calculated from the daily domestic
close at 1500 GMT.
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(Reporting by Reuters bureaus; writing by Gergely Szakacs;
Editing by Ruth Pitchford)
