* FX gain as risk appetite improves, Poland sells bond
* Worries over Greece remain, dealers say
* Crown tests 2010 high in afternoon trade
(Adds new comments, updates prices)
By Dagmara Leszkowicz and Gergely Szakacs
WARSAW/BUDAPEST, Feb 17 (Reuters) - Poland's zloty firmed on
Wednesday, buoyed by strong demand for its 10-year paper, which
also supported other central European currencies even as market
fears lingered on over Greece's fiscal troubles.
Poland, the only European Union member state to escape
recession during the global downturn, sold 2 billion zlotys of
10-year bonds at a primary tender, with demand almost triple the
supply, underscoring strong investor confidence in its economy.
[]
"The auction was successful, with good prices, but the
market reaction is limited," said one Warsaw-based dealer.
"Compared to the previous tender, yields were higher."
The average yield of the paper stood at 6.103 percent, just
a shade higher from a previous auction held on January 20. The
ministry also sold 400 million zlotys of the same paper at a
top-up tender.
Despite worries about euro zone periphery states, currencies
in the region have gained since the start of the year, with the
zloty rising over 3 percent versus the euro, Romania's leu
gaining close to 3 percent and the Czech crown up about 2
percent.
Analysts say central European countries are in better shape
than euro zone periphery countries and government bond yields in
the region have not jumped at the pace seen in Greece, Portugal
or Spain.
The Czech crown <EURCZK=> tested its 2010 high in afternoon
trade. Analysts said recent zloty firming made zloty-crown cross
trade, favoured over the past half year, less attractive.
"Current levels don't look advantageous for speculative
trades like the long zloty/short crown," Raiffeisenbank said in
note.
Stock markets in the region also rose on Wednesday, with
Prague <> adding 0.85 percent, Warsaw <> gaining 1.6
percent and Budapest <> rallying 1.96 percent by 1432 GMT.
HUNGARY RATES IN FOCUS
Confidence in euro-linked assets was also supported by solid
demand for Spain's 15-year benchmark euro bond, seen as a test
of sentiment towards some of the euro zone's highly-indebted
states. []
"Basically the fears over Greece have abated somewhat,
stocks are rising and the euro also gained, which supports
emerging currencies," a Budapest-based trader said.
Analysts said the forint had held steady over the past weeks
thanks to a dramatic improvement in the country's external
finances due to a collapse in imports but further gains were
limited due to an uncertain economic outlook.
Hungary holds elections in April where the main opposition
Fidesz party looks well-placed to defeat the unpopular ruling
Socialists and the party has indicated the budget deficit could
be nearly double the government's 3.8 percent of GDP target.
Mihaly Varga, a key policy-maker in Fidesz, expressed hope
on Wednesday that Hungary could adopt the euro in 2015 but the
main priority of the next government should be to create jobs
and revive the ailing economy, he said. []
Analysts also said a further quarter point rate cut in
Hungary, which would bring its main lending rate to a record low
of 5.75 percent, would be market-neutral, but the forint could
firm on comments indicating an end to the easing cycle.
Hungary's central bank has cut interest rates by a
cumulative 350 basis points since July to 6 percent as the
country restored some confidence in its finances, while a steep
economic downturn is expected to cut inflation later this year.
In contrast, analysts see Polish and Czech policymakers
reversing monetary easing cycles dating back to 2008 later this
year and expect Polish interest rates to be on the rise in the
second half.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.815 25.984 +0.65% +1.95%
Polish zloty <EURPLN=> 3.97 3.986 +0.4% +3.38%
Hungarian forint <EURHUF=> 270.5 271.72 +0.45% -0.06%
Croatian kuna <EURHRK=> 7.29 7.314 +0.33% +0.26%
Romanian leu <EURRON=> 4.114 4.113 -0.02% +3%
Serbian dinar <EURRSD=> 98.729 98.403 -0.33% -2.89%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +3 basis points to 98bps over bmk*
7-yr T-bond CZ7YT=RR +1 basis points to +139bps over bmk*
10-yr T-bond CZ10YT=RR -6 basis points to +120bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -1 basis points to +512bps over bmk*
5-yr T-bond PL5YT=RR -1 basis points to +328bps over bmk*
10-yr T-bond PL10YT=RR -3 basis points to +168bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -1 basis points to +552bps over bmk*
5-yr T-bond HU5YT=RR -1 basis points to +503bps over bmk*
10-yr T-bond HU10YT=RR -2 basis points to +449bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1537 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
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(Reporting by Reuters bureaus, writing by Dagmara Leszkowicz,
editing by Stephen Nisbet)
