* Forint hits 9-mth high before paring gains
* Shorter-dated Hungarian bonds seen at wall
* Stocks gain to buoy FX as investors pause on rally
(Adds bonds, details, updates prices)
By Jason Hovet
PRAGUE, Oct 20 (Reuters) - Hungary's forint hit its highest
since January on Tuesday following central bank comments that
there will be a limit to further interest rate cuts, before
retracing gains with other central European currencies.
The Polish zloty and Czech crown dipped after gains over the
past week, while the forint and Romanian leu were steady with
investors eyeing designate Prime Minister Lucian Croitoru's
efforts to form a new government.
The Hungarian central bank cut interest rates to a more than
three-year low of 7 percent on Monday, and central bank Governor
Andras Simor said more gradual cuts could come although there
was a limit. []
Analysts [] expect rates to bottom out below 6
percent next year as the central bank seeks to revive one of the
worst-hit emerging European economies. Monday's meeting left
many convinced the bank would now move to smaller quarter-point
steps after more a series of bigger moves.
"The forint was supported by the fact that the Hungarian
central bank does not give the impression of having given up its
careful approach," Commerzbank analysts said in a note.
"Further rate steps continue to depend on a positive market
environment," they added, saying fundamentals will limit forint
appreciation although the unit could test the 260 per euro.
By 0755 GMT, the forint <EURHUF=> was steady on the day at
264.7 to the euro, pulling back slightly after firming below 264
in early trade. Bonds were firmer and added to gains over the
past month, when yields fell 60-80 basis points.
"There is not much steam left in the short end of the curve.
The market has already priced in most of what it wanted to price
in, many now believe the central bank will shift to smaller
steps in rate cuts," a local fixed income trader said.
Central European markets have been buoyed by improved global
appetite for risk and regional bourses are trading at or near
2009 highs. Stocks rose by up to 1 percent on Tuesday.
The weaker dollar, which hit a 14-month low against a basket
of currencies, also supported currency markets. []
But dealers said the market was waiting for new triggers to
firm more, and emerging markets in general were weighed down by
Brazilian moves to tax some capital inflows. []
STUCK FOR NOW
Strategists have stayed cautious in the face of still
sluggish industry, rising joblessness and spiralling budget
deficits in the region that have muted central Europe's markets
rebound compared to other developing economies.
A Reuters poll this month pointed to only modest gains for
most currencies over the next 12 months, with the Polish zloty a
strong outperformer. []
The zloty <EURPLN=> inched down a touch to 4.17 percent on
Tuesday. Polish industrial output fell less than expected in
September. []
Romania's leu <EURRON=> sat near a seven-month low, bid at
4.29 to the euro.
Dealers said the country's political woes, which may
undermine its efforts to meet conditions under an IMF deal, was
tempered by worries of central bank intervention at 4.3 per
euro, a level they say it has defended in the past weeks.
Political analysts give Croitoru little chance to win over
majority opposition support, which could prolong uncertainty
until the Nov. 22 presidential elections. []
"The market is in wait-and-see mode," one dealer in
Bucharest said. "We're most likely to wait until after (the Nov.
22 presidential) elections."
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.723 25.689 -0.13% +4.00%
Polish zloty <EURPLN=> 4.168 4.168 0% -1.27%
Hungarian forint <EURHUF=> 264.65 264.72 +0.03% -0.42%
Croatian kuna <EURHRK=> 7.218 7.219 +0.01% +2.04%
Romanian leu <EURRON=> 4.29 4.29 0% -6.42%
Serbian dinar <EURRSD=> 92.98 92.97 -0.01% -3.76%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +25 basis points to 124bps over bmk*
7-yr T-bond CZ7YT=RR -18 basis points to +129bps over bmk*
10-yr T-bond CZ10YT=RR -8 basis points to +96bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -8 basis points to +493bps over bmk*
5-yr T-bond HU5YT=RR -8 basis points to +438bps over bmk*
10-yr T-bond HU10YT=RR -14 basis points to +385bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1206 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus; Writing by Jason Hovet; Editing
by Victoria Main)
