* FX hold strong but worries over Greece still key
* Leu edges up on Fitch move
* Polish bonds slightly weaker ahead of switch tender
* Consensus view on zloty may cause its higher volatility
(Updates with Fitch move on Romania)
By Jason Hovet and Marius Zaharia
PRAGUE/BUCHAREST, Feb 2 (Reuters) - The leu edged up after
Fitch revised Romania's outlook to stable from negative on
Tuesday as central European currencies held on to gains that
sent the leu and the zloty to their highest in 13 months.
Fitch Ratings said a sharp narrowing of Romania's external
shortfall and its success in bringing an International Monetary
Fund deal back on track were stabilising Romania's outlook, but
warned of "political challenges" ahead. []
The leu currency <EURRON=> firmed slightly after the
announcement, trading at 4.0860 per euro at 1625 GMT, compared
with 4.0895 before the statement release.
"The outlook improvement will raise foreign investors'
confidence in the Romanian economy which will have a positive
impact on the leu currency, interest rates, yields," said ING
Bank Romania chief economist Nicolaie Alexandru-Chidesciuc.
Investors have turned more positive on a the region's
recovery prospects this year, but worries over Greece's
financing problems still weigh on the region and may halt their
further appreciation.
The zloty broke through the psychological 4.0 per euro level
on Monday, while Hungary's forint and the Czech crown hit
two-week peaks.
On Tuesday, the crown <EURCZK=>, the forint <EURHUF=> were
0.1 percent weaker on the day, while the zloty <EURPLN=> stayed
flat, trading at 3.98 per euro.
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
IMF 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=> 25.955 25.943 -0.05% +1.4%
Polish zloty <EURPLN=> 3.98 3.981 +0.03% +3.12%
Hungarian forint <EURHUF=> 270.25 269.89 -0.13% +0.04%
Croatian kuna <EURHRK=> 7.314 7.314 0% -0.07%
Romanian leu <EURRON=> 4.086 4.082 -0.1% +3.71%
Serbian dinar <EURRSD=> 98.7 98.23 -0.48% -2.86%
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 1825 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, Dagmara
Leszkowicz and Marius Zaharia; editing by Andy Bruce)
