* Czech, Polish PMI dips, Hungary jumps
* Euro, stocks lend support to FX
* Zloty hits 12-week high, crown touches 20-month high
* Hungary mkts regain ground lost after IMF talks collapsed
(Recasts with fresh prices, new comments)
By Jason Hovet and Sandor Peto
PRAGUE/BUDAPEST, Aug 2 (Reuters) - A firmer euro and rising
stocks boosted central European currencies on Monday, lifting
the Polish zloty <EURPLN=> to 12-week highs against the euro,
while the Czech crown <EURCZK=> revisited a 20-month peak.
The Hungarian forint <EURHUF=> continued its recovery,
firming to levels seen before markets fell sharply last month
after Budapest ended talks with the International Monetary Fund
on renewing an aid deal.
The region's markets shrugged off a slowdown in economic
growth indicated by the latest Polish and Czech manufacturing
surveys, while Hungary's purchasing managers index (PMI) rose in
July. []
Share markets rose, helped by rising risk appetite as
European shares hit a three-month high, spurred by strong
earnings reports from the financial sector, and the euro <EUR=>.
central Europe's reference currency, surged against the U.S.
dollar.
The forint led regional currencies higher, gaining 0.65
percent against the euro by 1356 GMT, to 281.6. Hungary's BUX
equity index <> jumped more than 3 percent, led by a rise of
OTP <OTPB.BU>, the country's biggest commercial bank.
The BUX and Hungarian government bonds -- whose yields
dropped by round 10 basis points as short covering continued --
have now fully rebounded from last month's plunge.
But dealers warned that investors still have not forgotten
concerns about the country's debt financing, even though the
rise in risk appetite overshadows most local factors.
"This is happening thanks to the euro's firming beyond 1.31
(per dollar)," one Budapest-based dealer said. "But nothing is
all right. A downgrade (of the country's debt) remains a serious
risk ... This is a grace period."
CROWN, ZLOTY AT HIGHS
The forint underperformed the zloty and the crown in the
past months, improving the country's export positions but
weighing on inflation prospects.
Analysts said it was too early to read too much into the
latest PMI data concerning the regional economic outlook.
The crown revisited 20-month highs to the euro. It was bid
at 24.653, firmer by 0.4 percent from Friday.
It broke below the 24.70 level but dealers do not see it
sustaining gains but rather drifting back to around 25 per euro
level before the Thursday central bank policy meeting.
That level has sparked verbal interventions from the central
bank in the past to protect export strength.
"A change in interest rates is not expected and the comment
will be important," Raiffeisenbank said in a note. "It is still
a question whether the central bank will touch the crown in its
comments."
The zloty also gained 0.4 percent to 3.987 versus the euro,
staying on the firmer side of the key 4.0 level, while Polish
bonds were flat with 2-year bonds trading at a yield of 4.75
percent and 10-year bonds at 5.84 percent.
Traders said the yield curve could flatten further if
increased inflation risks fuel expectations for an interest rate
hike by the central bank. []
Hungary's yield curve has flattened out in recent months as
markets priced out interest rate cut expectations and a hike
appeared on the horizon as a risk. Three-year bond yields
dropped 10 basis points to 6.93 percent on Monday, while the
10-year yield fell 12 basis points to 7.15 percent.
"If the risk of an interest rate hike subsides and the
forint stays at around 280 or even firms, short yields can start
to come lower. The shape of the curve is indeed strange now as
many fund managers say," one Budapest-based bond trader said.
The markets are watching the Romanian central bank's meeting
scheduled for Wednesday. The leu <EURRON=> edged up 0.1 percent,
but dealers said gains would likely be limited by the chances of
central bank intervention to prevent volatility.
Trade may also remain subdued before the end of Romania's
IMF review on Wednesday.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.653 24.751 +0.4% +6.75%
Polish zloty <EURPLN=> 3.987 4.003 +0.4% +2.93%
Hungarian forint <EURHUF=> 281.6 283.42 +0.65% -4%
Croatian kuna <EURHRK=> 7.233 7.233 0% +1.05%
Romanian leu <EURRON=> 4.242 4.248 +0.14% -0.11%
Serbian dinar <EURRSD=> 106.77 106.29 -0.45% -10.2%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -1 basis points to 66bps over bmk*
7-yr T-bond CZ7YT=RR -3 basis points to +98bps over bmk*
10-yr T-bond CZ9YT=RR -9 basis points to +89bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -1 basis points to +394bps over bmk*
5-yr T-bond PL5YT=RR -6 basis points to +370bps over bmk*
10-yr T-bond PL10YT=RR -4 basis points to +314bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -15 basis points to +582bps over bmk*
5-yr T-bond HU5YT=RR -14 basis points to +537bps over bmk*
10-yr T-bond HU10YT=RR -17 basis points to +445bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1556 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 Andrew Heavens)
