* FX down on growing risk aversion, zloty leads losses
* Crown hits 4-month low, bonds correct, stocks plunge
* Politics, fears over IMF aid, still weigh on leu
(Updates throughout)
WARSAW/BUCHAREST, Oct 27 (Reuters) - The Czech crown hit a
four-month low and led losses in central Europe on Tuesday, hit
by a sharp rise in the dollar, which analysts say could be the
trigger for a larger correction of regional assets.
Romania's leu <EURRON=> was stuck around 4.29 against the
euro as fears over the country's political turmoil were offset
by worries over central bank intervention on the FX market.
The euro, used by investors as a proxy for risk appetite,
fell sharply to the dollar after U.S. consumer confidence index
worsened in October [], triggering a selloff in
regional assets.
At 1505 GMT the zloty <EURPLN=> was 0.5 percent down versus
the euro, the Hungarian forint <EURHUF=> was 0.4 percent lower,
while the Czech crown <EURCZK=> was 0.6 percent weaker, leading
losses after hitting a 4-month low of 26.224 per euro.
"It (the crown) has been hit by the dollar," a Prague-dealer
dealer said. "Stocks are also suffering, and all of emerging
Europe is hit. Off-shore pressure (to sell) is quite strong."
Regional bourses fell 1.5-2.5 percent on the day.
The crown lost over 2 percent this month on the possibility
of a further rate cut, which was supported by Governor Zdenek
Tuma and Vice Governor Miroslav Singer last month.
BNP Paribas recommended on Monday selling the crown against
the euro with a target to 26.50 on expectations the central bank
may try to talk the currency down more. []
Czech central banker Robert Holman said on Monday that
interest rates should stay flat until the global economy
recovers as more easing would have a limited impact on market
rates and could cause crown volatility. []
Analysts say emerging European markets are under pressure as
some central banks in the region are expected to cut rates
further, wide budget deficits weigh and concerns grow over IMF
deals in Ukraine, Romania and Latvia.
Danske Bank analysts said in a note the correction could be
small if investors focus on global recovery expectations.
"However, it could also be argued that the correction in the
EMEA FX markets will be large due to a string of worries, ...
most notably a fragile recovery, continued serious worries about
the health of the CEE banking sector and finally rising concern
about the political situation across the region," the bank said.
Danske also recommended investors on Tuesday to buy the euro
at 268.75 forints for a target of 282, with a stop loss level at
258 on a 1-3 months horizon [].
BONDS PULL BACK
Poland said on Tuesday it will offer bonds maturing in 2013,
2014 and 2019 at a switch tender on Thursday in exchange for
papers due in 2009 and 2010. []
Yields on longer-dated bonds rose 1-2 basis points after the
announcement, compared with opening levels, to 5.66 percent on
the five-year paper and 6.12 percent on 10-year bonds.
Polish government bonds have wobbled recently as markets
digested concerns over a rising general government deficit and
public debt, but demand has been lifted by lower supply.
Czech bonds corrected more from recent gains, with the
3-year <CZ3YT=RR> yield rising around 10 basis points, while
Hungarian yields added some 10-20 basis points in thin trade.
In Romania, the finance ministry rejected all bids at a
treasury bill tender on Monday due to unacceptable yields.
Markets were also readying for the Polish central bank rate
decision on Wednesday, but it is widely expected rates will stay
flat at an all-time low of 3.5 percent.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.181 26.023 -0.6% +2.18%
Polish zloty <EURPLN=> 4.209 4.19 -0.45% -2.23%
Hungarian forint <EURHUF=> 269.51 268.35 -0.43% -2.21%
Croatian kuna <EURHRK=> 7.215 7.217 +0.03% +2.08%
Romanian leu <EURRON=> 4.288 4.285 -0.07% -6.38%
Serbian dinar <EURRSD=> 93.201 93 -0.22% -3.99%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +2 basis points to 86bps over bmk*
7-yr T-bond CZ7YT=RR +7 basis points to +100bps over bmk*
10-yr T-bond CZ10YT=RR +9 basis points to +91bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +6 basis points to +368bps over bmk*
5-yr T-bond PL5YT=RR +5 basis points to +314bps over bmk*
10-yr T-bond PL10YT=RR +1 basis points to +278bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +17 basis points to +522bps over bmk*
5-yr T-bond HU5YT=RR +30 basis points to +465bps over bmk*
10-yr T-bond HU10YT=RR +22 basis points to +406bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1705 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus; writing by Dagmara Leszkowicz
and Marius Zaharia; editing by Stephen Nisbet and Andy Bruce)
