* Forint leads gains after well-bid debt auctions
* Romania to press IMF for deficit of up 7 pct/GDP
* Budgets, recession maintain risks
* Markets eye Romania, Czech rate decisions
(Recasts, with new prices, comments.)
By Marius Zaharia and Sandor Peto
BUCHAREST/BUDAPEST, July 30 (Reuters) - Hungary's forint
firmed on Thursday, driven by another successful round of debt
tenders, as further gains for global stocks pushed central
Europe's currencies broadly higher.
The forint<EURHUF=> firmed 0.7 percent to 267.50 per euro by
1325 GMT, leading gains, while Poland's zloty rose 0.4 percent.
Romania's leu eked out gains of 0.2 percent and the Czech
crown was flat ahead of central bank meetings in the two
countries next week.
Gains for global equities markets have driven regional
currencies higher this month, but they eased back this week as
worries over widening budget gaps and poor GDP data in Lithuania
have given markets pause for thought.
The forint outperformed its regional peers despite a hefty
100 basis point rate cut on Monday, thanks to strong demand at
bi-weekly bond auctions that added to hopes it can wean itself
off International Monetary Fund aid. []
"The forint firmed because of the (bond) auctions, probably
foreign investors subscribed," one Budapest-based dealer said.
Rate setter Judit Nemenyi said the NBH should get to the
bottom of its easing cycle as soon as possible.[]
The leu<EURRON=> posted gains despite a forecast from its
Romania's finance minister that the economy may shrink as much
as 8 percent this year, compared with the International Monetary
Fund's (IMF) call for a 4.1 percent contraction.[].
Romania, the Czech Republic and Poland are both struggling
to contain budget deficits [] and analysts say
attempts to tighten their fiscal strings will burden a potential
economic recovery.
A government official told Reuters that Romania will ask the
IMF to allow it to raise its budget gap to up to 7 percent of
GDP, compared with a previous 4.6 percent target, in a move that
may remind markets of this regional weakness [].
Hungary is seen in a better position to control spending and
expects a lower budget gap than in the other major economies in
the region which have a floating exchange rate.
RATE MOVES IN FOCUS
Other risks to the region include a spillover from worries
over currency devaluation in the Baltics, the fragility of a
banking system burdened with high foreign debt and downside
risks to growth.
"The underlying weaknesses in the region will not disappear
overnight," Capital Economics said in a note on the region.
"Fragile banking sectors will keep credit conditions tight,
while the spectre of fiscal tightening will weigh on growth
prospects, particularly in Hungary."
Further rate cuts, if not counterbalanced by appetite for
risk, may also weigh on the currencies and markets are beginning
to consider rate decisions in Czech Republic and Romania next
week.
Analysts are split whether another cut could be on the cards
in Czech Republic [] and expect a 50 basis point cut
in Romania. Poland as expected held rates steady on Wednesday.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.553 25.565 +0.05% +4.7%
Polish zloty <EURPLN=> 4.164 4.18 +0.38% -1.18%
Hungarian forint <EURHUF=> 267.5 269.32 +0.68% -1.48%
Croatian kuna <EURHRK=> 7.346 7.342 -0.05% +0.26%
Romanian leu <EURRON=> 4.205 4.212 +0.17% -4.53%
Serbian dinar <EURRSD=> 93.586 93.27 -0.34% -4.39%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +33 basis points to 139bps over bmk*
4-yr T-bond CZ4YT=RR +26 basis points to +167bps over bmk*
8-yr T-bond CZ8YT=RR +9 basis points to +271bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -5 basis points to +364bps over bmk*
5-yr T-bond PL5YT=RR 0 basis points to +293bps over bmk*
10-yr T-bond PL10YT=RR -3 basis points to +270bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -21 basis points to +695bps over bmk*
5-yr T-bond HU5YT=RR -58 basis points to +623bps over bmk*
10-yr T-bond HU10YT=RR -49 basis points to +531bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1525 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, Writing by Marius Zaharia/Sandor
Peto; Editing by Patrick Graham)
