* Czech election delay seen good for budget
* Hungarian bonds extend gains on rate cut expectations
* Zloty rebounds from fall, seen fragile
By Karolina Slowikowska and Sandor Peto
WARSAW/BUDAPEST, Sept 15 (Reuters) - The Czech crown firmed
on Tuesday as a delay in planned elections is expected to speed
up action on a rising budget deficit, while Hungary's bonds
rallied on expectations for further central bank rate cuts.
Other currencies, government bonds and stocks in Central
Europe also firmed in a broad-based rebound from falls early
this week as risk appetite in the world rose, partly due to
faster than expected growth in U.S. retail sales in August.
Hungarian bonds are benefiting from expectations that rate
cuts in coming months will be deeper than earlier expected as
Hungary's recession is seen curbing inflation and prompting
action from the central bank (NBH), traders said.
The Czech crown <EURCZK=>, which is usually less volatile
than its regional peers the zloty<EURPLN=> and the forint
<EURHUF=>, firmed 0.2 percent against the euro by 1419 GMT.
Czech leftist parties rejected a plan to dissolve parliament
and allow for November early elections. []
Now with the vote probably delayed until next June,
political parties could back painful belt-tightening moves, but
deflect political backlash from voters on to the non-political,
caretaker cabinet of Jan Fischer.
"It seems to be a little strange. But I think from the
economic side, it doesn't have to be as bad as it seems when you
look at the political commentary," said Ivo Prokop, a trader at
Raiffeisen in Prague.
"It could be better without early elections because a state
budget could actually be approved earlier."
Fiscal concerns in the region have led to currency falls in
the past weeks as recession, or slowdown in the case of Poland,
cuts state revenues and boosts costs.
But a global market rebound is still supporting the region.
The ZEW expectations index of Germany, the region's biggest
export market, rose less than expected in September
[] and a 19.4 percent fall in Hungary's industrial
output in July also gave a reminder that economic recovery can
be shaky.
The forint still firmed by 0.4 percent per euro.
"The global sentiment remains relatively positive, but this
can change quickly," one Budapest-based currency dealer said.
"We saw the zloty weaker than 4.2 (on Monday) and the forint was
at 275 -- these currencies can produce these jitters any day."
The zloty, Monday's biggest loser, led gains and
strengthened by 0.55 percent to 4.165.
"When we look at the technical analysis (of the zloty) it
seems if we top the level of 4.20 (once again), the zloty is
likely to weaken to 4.30 to the euro and only then may start its
strengthening again," one Warsaw-based dealer said.
BONDS FIRMER
Equity indices were flat or firmer in the region, and
government bonds joined the rising trend, mainly in Hungary.
Goldman Sachs analysts joined the view that the NBH would
shave more off its 8.0 percent base rate than earlier expected.
"We are lowering our rate forecasts from 8.0, 7.5 and 7.0
(percent) to 6.5, 6.0, 5.5 (percent) in 3, 6 and 12 months from
now, respectively," they said in a note.
Traders said new foreign buyers appeared in the market and
rate cut hopes could push mainly short- and medium-dated bonds
lower, causing a further steepening in the yield curve.
Polish bonds firmed only a shade as annual inflation in
August was slightly above forecasts, but the Polish central bank
is expected to keep its 3.5 percent main rate unchanged anyway
in the next months.[]
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.394 25.454 +0.24% +5.35%
Polish zloty <EURPLN=> 4.165 4.188 +0.55% -1.2%
Hungarian forint <EURHUF=> 272.13 273.27 +0.42% -3.15%
Croatian kuna <EURHRK=> 7.327 7.326 -0.01% +0.52%
Romanian leu <EURRON=> 4.263 4.268 +0.12% -5.83%
Serbian dinar <EURRSD=> 93.496 93.432 -0.07% -4.3%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +12 basis points to 202bps over bmk*
7-yr T-bond CZ7YT=RR -1 basis points to +182bps 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 -1 basis points to +392bps over bmk*
5-yr T-bond PL5YT=RR -1 basis points to +355bps over bmk*
10-yr T-bond PL10YT=RR -2 basis points to +298bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -15 basis points to +620bps over bmk*
5-yr T-bond HU5YT=RR -17 basis points to +550bps over bmk*
10-yr T-bond HU10YT=RR -9 basis points to +482bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1619 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Sandor Peto;
Editing by Ruth Pitchford)
