* Zloty down on profit taking, other FX also weaker
* Bonds stable but may track falling FX
* Improving economic outlook may support currencies
(Adds fixed income, detail)
By Dagmara Leszkowicz
WARSAW, March 9 (Reuters) - Central European currencies
pulled back from multi-month highs on profit-taking on Tuesday
but the region's improving economic outlook is expected to
provide near-term support.
By 1017 GMT the zloty <EURPLN=> was 0.4 percent lower after
touching 15-month highs on Monday, while Hungary's forint
<EURHUF=> was down 0.3 percent.
The Czech crown <EURPKN=> and Romania's leu <EURRON> both
fell some 0.2 percent against the euro.
Stocks in the region were also down on Tuesday, with
Budapest's BUX index leading losses, falling 1.1 percent.
"Currencies are weaker today but looking at the recent
rally, profit taking is just a natural consequence," said Marcin
Bilbin, a dealer at Pekao bank in Warsaw.
"However, there's no big news in the market or anything that
might indicate a sharper correction."
The key level for the zloty is 3.89-3.90 against the euro,
he said.
"If the EURPLN tops these levels we can observe bigger
volatility as there are lots of long zloty positions now and
breaching that level will activate stop-losses."
In both Hungary and the Czech Republic data showed
industrial output grew faster than expected in January but
dealers said the figures did not have a significant impact on
currencies. []
BONDS FLAT
Economic recovery and capital inflows are seen strengthening
the region's currencies further over the next year, though a
Reuters poll showed some shorter-term retreat may be in the
pipeline. []
Poland was the only European Union member to escape
recession last year, with growth of 1.7 percent, and the zloty
is expected to lead gains in the region.
Earlier in the day, Poland set initial guidance on an issue
of four-year Swiss franc bonds at 88 basis points above
mid-swaps, with the initial size seen at a minimum of 200
million francs. []
On the domestic market, bonds were relatively flat after
Polish 10-year paper yields fell to 13-month lows on Monday.
The Polish yield curve has flattened recently on
expectations for further interest rate hikes later in the year.
By contrast, in Hungary expectations for another interest
rate cut helped the country's debt to strengthen, but papers may
weaken in the short-term as the forint falls further.
"I don't see a negative correction in bonds as yet, but if
the forint weakens further it may start off," a Budapest-based
fixed-income trader said.
Poland's and Hungary's key interest rates stand at all-time
lows of 3.5 percent and 5.75 percent respectively.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.647 25.592 -0.21% +2.62%
Polish zloty <EURPLN=> 3.884 3.87 -0.36% +5.66%
Hungarian forint <EURHUF=> 267.1 266.28 -0.31% +1.22%
Croatian kuna <EURHRK=> 7.263 7.262 -0.01% +0.64%
Romanian leu <EURRON=> 4.095 4.085 -0.24% +3.48%
Serbian dinar <EURRSD=> 99.82 99.57 -0.25% -3.95%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +8 basis points to 88bps over bmk*
7-yr T-bond CZ7YT=RR -2 basis points to +118bps over bmk*
10-yr T-bond CZ10YT=RR 0 basis points to +95bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +1 basis points to +408bps over bmk*
5-yr T-bond PL5YT=RR +4 basis points to +324bps over bmk*
10-yr T-bond PL10YT=RR +3 basis points to +279bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +2 basis points to +523bps over bmk*
5-yr T-bond HU5YT=RR +4 basis points to +455bps over bmk*
10-yr T-bond HU10YT=RR +2 basis points to +421bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1017 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 Susan Fenton)
