* FX hold strong but worries over Greece still key
* Polish bonds slightly weaker ahead of switch tender
* Consensus view on zloty may cause its higher volatility
(Updates throughout)
By Jason Hovet and Dagmara Leszkowicz
PRAGUE/WARSAW, Feb 2 (Reuters) - Central Europe's currencies
held gains on Tuesday after the recent rally but worries over
the euro zone periphery still weigh on the region and may halt
their further appreciation.
The zloty broke through the psychological 4.0 per euro level
on Monday, and Hungary's forint and the Czech crown hit two-week
peaks as investors turned more positive on a recovery that makes
central Europe look a safer bet than much of the euro zone.
Currencies are seen firming this year but analysts say
Greece's spiralling budget gap and any worsening of Athens'
troubles is likely to raise risk aversion and may hurt the
market further on.
"Improvement in Greek swaps is not enough, the country's
problems are still weighing on the region and do not let the
euro to rebound," said one Warsaw-based dealer.
By 1502 GMT the crown <EURCZK=> eased 0.1 percent to the
euro, while the forint <EURHUF=> gained 0.1 percent to 269.8 to
the euro.
The zloty <EURPLN=> stayed flat compared to the previous
close, off earlier highs, and the leu <EURRON=> was 0.2 percent
down at 4.09 to the euro. The two have led the region this year
with 3.0 percent and 3.5 percent rises, respectively.
Many analysts say the zloty is the most undervalued currency
in the region and still has much room to gain, however this
consensus view may push the unit down.
"This (consensus that the zloty is likely to strengthen)
could eventually limit the downside for EURPLN and increase the
risk of a sudden sell-off and rising volatility," analysts at
Nordea bank wrote in a note.
"Being the most liquid currency in the region, it is also
more vulnerable to spill-over effects from problems in other
countries in the region."
OWN PROBLEMS
The flip side is that Hungary, Poland and the Czech Republic
have done much of the work that still lies ahead of Greece to
reduce overspending in the budget.
Bond yields in Hungary fell 5-6 basis points, and are 15
basis points below levels seen before Greek worries rattled
markets. Hungary was the first in the region to reach out for
International Monetary Fund funds during the financial crisis
but plans to come off the aid this year.
Dealers said bonds looked set to extend gains as the central
bank eases interest rates in the coming months.
The Polish bonds were slightly weaker ahead of a Wednesday
switch tender where the finance ministry will offer bonds
maturing in 2013,2015 and 2018 in exchange for papers due 2010.
There are still concerns over Central Europe's own fiscal
position, though., Analysts say governments are reliant on
growth to bring down their deficits and do not hold out much
hope of further fiscal reform before elections this year and
next.
Poland's government said last week it would cap budget
spending and speed up the sale of state assets in a drive to
counter a rise in its public sector deficit, which one official
said on Monday would now hit 7 percent of GDP this year -- much
more than previously planned. []
The zloty has found support this week from state plans to
start bookbuilding on the sale of a 16-percent stake in
electricity provider Enea. []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.981 25.957 -0.09% +1.3%
Polish zloty <EURPLN=> 3.988 3.988 0% +2.91%
Hungarian forint <EURHUF=> 269.79 269.95 +0.06% +0.21%
Croatian kuna <EURHRK=> 7.318 7.314 -0.05% -0.12%
Romanian leu <EURRON=> 4.09 4.083 -0.17% +3.6%
Serbian dinar <EURRSD=> 98.52 98.33 -0.19% -2.68%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +7 basis points to 100bps over bmk*
7-yr T-bond CZ7YT=RR +4 basis points to +143bps over bmk*
10-yr T-bond CZ10YT=RR +1 basis points to +129bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +1 basis points to +367bps over bmk*
5-yr T-bond PL5YT=RR +1 basis points to +324bps over bmk*
10-yr T-bond PL10YT=RR +1 basis points to +285bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR 0 basis points to +533bps over bmk*
5-yr T-bond HU5YT=RR +1 basis points to +491bps over bmk*
10-yr T-bond HU10YT=RR -1 basis points to +434bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1502 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Jason Hovet; editing
by Patrick Graham and Andy Bruce)
