(Adds bonds)
By Karolina Slowikowska
WARSAW, Sept 15 (Reuters) - Central and Eastern European
currencies were stronger early on Tuesday, with the zloty
leading the gains on improving economic outlook, while the Czech
crown was unmoved on weakening early elections prospects.
Bonds were also up, helped by generally warmer sentiment,
although dealers and analysts said the improvement in sentiment
could be short-lived so the outlook remained uncertain .
Bond investors were also awaiting Polish inflation data for
August due at 1200 GMT. Analysts polled by Reuters forecast
price growth stabilised last month at 3.6 percent.
The zloty <EURPLN=>, which recovered after sharp losses in
early trade on Monday, was 0.8 percent up against the euro.
After sharp falls early on Monday, the currency recovered on
rising US stocks and also after the European Commission said the
country's growth would be at 1 percent this year, compared to
its previous forecast of a 1.4 percent contraction.
"We believe that the zloty was supported by rising US
stocks. The zloty's correction could, however, be a short break
before further weakening," BRE wrote.
Investors are particularly concerned by high general
government deficit and dividend payouts to foreign investors,
which helped to push Poland's current account into an unexpected
deficit in July. Further dividends are expected.
Czech August PPI unexpectedly edged up 0.2 percent from July
but showed the annual declined deepened, the biggest
year-on-year decline since records started in 1991.
The crown <EURCZK=> was little changed after the data and
unmoved by news that the main Czech leftist party, the Social
Democrats, will not back a move on Tuesday to dissolve
parliament and hold early elections in November.
This decision significantly narrows the chances the vote can
be successful.
The Czech lower house was due to meet on its own
dissolution, which should allow for an early election in Nov.
The plan to hold elections however could still be challenged in
courts, raising uncertainty over the election itself, as well as
plans to approve the 2010 budget and savings measures required
to hold the ballooning budget deficit in check.
The forint <EURHUF=> reversed some of its gains posted late
in Monday's session and eased to levels around 273.50 to the
euro early on Tuesday, but a trader said it was unlikely to ease
substantially, predicting a range of 272.5/275 per euro.
Another dealer said industrial output data scheduled for
Tuesday could have some impact on the market, but unless there
is major news coming from global markets, the forint was
expected to remain in its recent range throughout the session.
The Romanian leu <EURRON=> eased off six-month low of 4.2860
against the euro seen in the previous session in thin early
trade on Tuesday as the unit was waiting for signs of direction
from neighbouring currencies, dealers said.
Polish bonds were a touch stronger on Tuesday but dealers
said the warmer sentiment may not stay for long.
"Things are uncertain. It is difficult to say now how things
may develop. For now it's better, also helped by the better
sentiment on the zloty," said Maciej Slomka, chief fixed-income
dealer at Pekao Bank.
Czech bonds were stable, while the Hungarian government
bonds returned to the bullish trend of the past few months as
the forint recovered from Monday's falls, helped by expectations
for deep central bank (NBH) rate cuts in the coming months from
8 percent.
"All (bond) yields have come down significantly from (last
Thursday's) auction levels<HUAUCTION02>," one Budapest-based
fixed income trader said.
"There are rate cut expectations, in Hungary and in other
parts of the world. The yield falls will certainly continue for
some time, there is strong support from international markets...
We have seen jitters in both the EURPLN and euro/dollar, but
everything is pushed back quickly. The rallies of the past
months will not be reversed in just two days, if it is
reversed."
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.416 25.454 +0.15% +5.26%
Polish zloty <EURPLN=> 4.154 4.188 +0.82% -0.94%
Hungarian forint <EURHUF=> 272.24 273.27 +0.38% -3.19%
Croatian kuna <EURHRK=> 7.312 7.326 +0.19% +0.72%
Romanian leu <EURRON=> 4.264 4.268 +0.09% -5.85%
Serbian dinar <EURRSD=> 93.456 93.432 -0.03% -4.25%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +10 basis points to 201bps over bmk*
7-yr T-bond CZ7YT=RR +13 basis points to +196bps over bmk*
10-yr T-bond CZ10YT=RR -1 basis points to +180bps over
bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -2 basis points to +392bps over bmk*
5-yr T-bond PL5YT=RR -1 basis points to +356bps over bmk*
10-yr T-bond PL10YT=RR -3 basis points to +298bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -11 basis points to +624bps over bmk*
5-yr T-bond HU5YT=RR -7 basis points to +561bps over bmk*
10-yr T-bond HU10YT=RR -9 basis points to +483bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1029 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
(Reporting by Reuters bureaus, writing by Karolina Slowikowska)
