* Forint surges ahead of budget, zloty positions closed
* Romanian currency rose overnight after govt survived vote
* Leu support at 4.26, more reforms seen needed
* Serbian c.bank intervenes again to defend dinar
(Recasts with forint move, prices, comments)
By Marius Zaharia and Sandor Peto
BUCHAREST/BUDAPEST, Oct 28 (Reuters) - Hungary's forint
surged on Thursday, helped by long zloty position closings after
Poland's central bank kept interest rates on hold and ahead of
the publication of Hungary's 2011 draft budget.
The forint <EURHUF=> was bid at 272.92 against the euro at
1250 GMT, firmer by 0.8 percent, the zloty <EURPLN=> shed 0.1
percent, while the leu <EURRON=> and the Czech crown <EURCZK=>
firmed 0.1 percent.
"London (players are) selling EURHUF in decent size. It
might be zloty/forint-related and the <CHFHUF=> is also firmer
than 200," one dealer said, adding that the zloty/forint rate
was testing its 200-day moving average at 68.85.
Hungarian government bond yields fell around 10 basis
points, helped by the forint's firming. The 10-year bond yield
dropped 11 basis points to 7.04 percent.
"I don't think Hungary's (fundamental) position relative to
Poland has improved," one Budapest-based bond trader said.
"There is a huge amount of zloty/forint positions," he said,
adding it was possible some were being closed in deals affected
by the Polish central bank not delivering a rate hike.
The bank is expected to lift its main interest rates from
3.5 percent soon, while the Hungarian central bank is expected
to keep its base rate at a record low of 5.25 percent at least
until the end of next year.<HUREPO1>
BUDGETS STILL UNDER WATCH
Other market participants said speculation about the draft
2011 budget which Hungary's government will have to submit to
parliament by Sunday may also have contributed to the forint's
rise.
The details published so far have been controversial and
markets will closely watch whether the government complements
new taxes on companies with tangible spending cuts.
"Although the measures will undoubtedly improve the
near-term deficit outlook, we believe the long-term financing
risks are increasing," said Gyula Toth, analyst at UniCredit in
Vienna in a note.
Assets in European emerging markets have been buoyed in the
past weeks by hopes that the U.S. Federal Reserve will flood
markets with cheap money soon.
But budgets remain under scrutiny in debt-ridden Europe, and
among the European Union's emerging markets the debt dynamics of
Hungary and Romania have attracted close attention.
Both states secured international aid during the global
crisis, but Hungary has decided to go it alone.
Romania's leu on Thursday lost the bulk of overnight gains
posted following a failed attempt to topple the government, as
markets turned their attention back to a review of the country's
fiscal reform programme by the IMF.
As widely expected, the 10-month-old centrist government
survived a no-confidence vote late on Wednesday over fiscal
tightening needed to keep funds from an International Monetary
Fund-led bailout flowing into central Europe's laggard economy.
The Fund is in Bucharest until Nov. 1 to review progress
with its reforms, and markets expect new fiscal challenges ahead
for the fragile coalition government.
The leu <EURRON=> gained about half a percent from
Wednesday's close overnight but failed to break through 4.26,
its 200-day moving average against the euro.
"The decision was likely just a temporary breather for the
government," Barclays Capital said in a note.
"The continued fiscal adjustment requires extending wage and
social transfer cuts into 2011, while elections are approaching
in 2012 ... The focus will be on the ongoing IMF mission."
Serbia's central bank continued to intervene in the market
by selling euros to defend the dinar <EURRSD=> after it hit at a
record low beyond 108 versus the euro. []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.608 24.632 +0.1% +6.95%
Polish zloty <EURPLN=> 3.964 3.962 -0.05% +3.53%
Hungarian forint <EURHUF=> 272.92 275.1 +0.8% -0.94%
Croatian kuna <EURHRK=> 7.343 7.342 -0.01% -0.46%
Romanian leu <EURRON=> 4.267 4.272 +0.12% -0.69%
Serbian dinar <EURRSD=> 107.45 107.05 -0.37% -10.77%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -2 basis points to 62bps over bmk*
7-yr T-bond CZ7YT=RR 0 basis points to +85bps over bmk*
10-yr T-bond CZ9YT=RR -1 basis points to +92bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -4 basis points to +369bps over bmk*
5-yr T-bond PL5YT=RR -2 basis points to +342bps over bmk*
10-yr T-bond PL10YT=RR +1 basis points to +307bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -9 basis points to +540bps over bmk*
5-yr T-bond HU5YT=RR -10 basis points to +512bps over
bmk*
10-yr T-bond HU10YT=RR -12 basis points to +446bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1450 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Marius Zaharia/Sandor Peto; editing by Stephen
Nisbet)
