* Improved sentiment lifts CEE currencies
* Leu rebounds on continuing IMF funding
* Zloty supported by the presidential election outcome
(Updates throughout)
By Sandor Peto and Dagmara Leszkowicz
BUDAPEST/WARSAW, July 6 (Reuters) - Central Europe's
currencies extended this week's gains on Tuesday, and dealers
said further upside was possible.
"The sentiment is much better comparing it to the previous
week," said Dorota Strauch, FX analyst at Raiffeisen bank in
Warsaw.
"Pressure on the leu eased and I expect a rebound (in the
region) at least this week, even though volatility should remain
high in the longer term."
The leu is recovering from a plunge last month and
benefiting from the International Monetary Fund's (IMF)
decision last week to release the latest tranche of its economic
bailout aid to Romania.
By 1352 GMT, Romania's currency <EURRON=> was 0.6 percent
stronger versus the euro, while Poland's zloty <EURPLN=> and
Hungary's forint <EURHUF=> added 0.3 percent and 0.4 percent
respectively.
Czech domestic markets were closed for a public holiday.
Stocks in the region were mostly in the black, led by
Budapest's BUX <>, with only Romania's BETI <> off its
previous gains, falling 0.9 percent.
Government bond prices also rose, mainly at the longer-end
of the curve led by Hungarian papers, with yield spreads over
corresponding Bunds narrowing by up to 18 basis points.
Hungary's yield curve flattened further, with the spread
between the benchmark 3- and 10-year bonds tightening to just 40
basis points, from more than 100 basis points three months ago,
possibly due to some short covering by foreign investors.
"It's difficult to understand what justifies that yield
flattening, looking at the state budget and the negative impact
of the (planned) bank tax on economic growth," one trader said.
A delegation of IMF and European Union representatives
began a review on Tuesday of Hungary's $25.1 billion loan deal
signed in Oct. 2008 -- the first such talks with the new
centre-right Fidesz government.
The government's plans to launch a tax on banks and cut pay
at state-owned firms to meet its budget 2010 deficit target,
will be key issues in talks with lenders. []
The deficit ballooned well over the annual target in June
according to figures released late on Monday. []
LOCAL FACTORS
In Romania, the possibility of central bank intervention to
prevent further weakening of the leu -- which hit all-time lows
against the euro last week -- was supportive, dealers said.
"It seems it's on a continuing firming trend since last
week," said a Bucharest-based dealer. "It's also helped by the
central bank."
The leu has now risen nearly 3 percent since last Thursday,
when it hit its lowest since the introduction of the euro on
worries about the speed of the economic recovery and whether the
IMF would release more funds, which it did on Friday.
The zloty continued to get support from the victory of
moderate conservative Bronislaw Komorowski in the presidential
election, which markets expect will pave the way for further
economic reforms.
"It looks like a wave of optimism touched the market," said
one Warsaw-based dealer. "It's still not risk appetite, though
risk aversion eased for sure ... Komorowski's victory just fits
the global trend."
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.481 25.519 +0.15% +3.28%
Polish zloty <EURPLN=> 4.099 4.113 +0.34% +0.12%
Hungarian forint <EURHUF=> 284.1 285.36 +0.44% -4.84%
Croatian kuna <EURHRK=> 7.19 7.194 +0.06% +1.66%
Romanian leu <EURRON=> 4.231 4.256 +0.59% +0.15%
Serbian dinar <EURRSD=> 103.85 104.05 +0.19% -7.67%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -5 basis points to 113bps over bmk*
7-yr T-bond CZ7YT=RR +2 basis points to +144bps over bmk*
10-yr T-bond CZ9YT=RR -4 basis points to +143bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -5 basis points to +407bps over bmk*
5-yr T-bond PL5YT=RR -6 basis points to +376bps over bmk*
10-yr T-bond PL10YT=RR -8 basis points to +322bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -11 basis points to +609bps over bmk*
5-yr T-bond HU5YT=RR -14 basis points to +575bps over bmk*
10-yr T-bond HU10YT=RR -24 basis points to +476bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1552 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Sandor Peto/Gergely
Szakacs/Dagmara Leszkowicz; Editing by Susan Fenton)
