* East Europe FX supported by improved risk appetite
* Crown catching up with region
* Sentiment helped by better data in Poland
* Investors eye next week's rate decisions in Poland and
Hungary
* Investors worry about Latvia ahead
(Adds Hungary's bond announcement, Polish growth forecasts,
fresh market prices)
By Krisztina Than and Karolina Slowikowska
BUDAPEST/WARSAW, July 23 (Reuters) - Emerging Europe's
currencies firmed on Thursday and dealers said sentiment is set
to remain positive in the days ahead as appetite for riskier
emerging markets assets remains healthy.
The region's currencies, still recovering from sharp falls
last year and earlier this year, have risen this week helped by
higher stocks, and successful bond auctions in Poland and
Hungary, showing an increase in appetite for the region's debt.
Analysts and dealers said investors were aware of possible
trouble in Latvia, a dark cloud hanging over the region's
markets, but that for now a significant part of the risk was
already priced in.
The positive sentiment was further underpinned on Thursday
by better data out of Poland.
Polish retail sales rose 0.9 percent year-on-year in June
and were up 2.2 percent month-on-month.[].
Unemployed inched down and was also better than forecast.
Both prompted the statistics office to forecast that growth
in the second quarter likely stood at about 0.8 percent, while
some analysts have said Poland's growth could have contracted in
that period. []
The zloty <EURPLN=> was 0.76 percent up since the close and
hit its strongest level since mid-January to trade at 4.2250
versus euro at 1346 GMT.
"Reception of the data and the growth forecast is positive.
It's also good that no matter the gains, there doesn't seem to
be much desire to take profit. For now things seem calm," said
Karol Zaluski, head of FX at ING in Warsaw.
The forint also gained on Thursday -- 0.93 percent against
the euro.
In the neighbouring Czech Republic, the crown which has
lagged the region for most of the week, rose on Thursday to a
7-month high during the session. The crown was up 0.77 pct
versus the euro.
At the same time, Hungary bonds held onto recent sharp gains
on rate cut expectations and a bill auction was heavily
oversubscribed.
A Reuters poll of analysts showed on Thursday Hungary's
central bank would cut rates by 50 basis points next Monday as
consolidation in the country's markets has opened room for
trimming the highest rate in the EU.[]
In Hungary and Poland, investors will closely eye interest
rate decisions due next week (Monday in Hungary and Wednesday in
Poland). Polish rates are seen on hold.
A late-in-the session Hungarian announcement that it would
offer 55 billion worth of bonds at the auction next week failed
to affect the market.
POSSIBLE TROUBLE
Latvia has been battling speculation it may devalue the
currency for months and fears still remain over its euro peg.
"Latvia is in the back of our minds but much of it is
already in the prices. If Latvia trouble cumulated with other
factors, like Bulgaria and Romania, then things could turn ugly.
But for now light optimism in the region seems to be the
prevailing choice," said Michal Dybula, regional economist at
BNP Paribas.
"Countries in the region that have fixed pegs or currency
boards are the possible likely culprits of trouble, if anything
were to go wrong in the region and contaminate its markets."
The Romanian leu <EURRON=> has been the most stable currency
in the region since March, when it secured IMF help. It has been
moving in a very tight range around 4.2 per euro, mostly in an
illiquid market dominated by local players and commercial flows.
"If you look at the graph, you can see the leu lately was
almost a peg, it was kept under tight control," one dealer said.
"If Latvia goes out of control, the worry is that we
(Romania) will be contaminated and go out of control as well."
The leu is theoretically a free-float but is seen "managed"
by the central bank.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.58 25.778 +0.77% +4.59%
Polish zloty <EURPLN=> 4.223 4.255 +0.76% -2.56%
Hungarian forint <EURHUF=> 269.5 272 +0.93% -2.21%
Croatian kuna <EURHRK=> 7.31 7.31 0% +0.75%
Romanian leu <EURRON=> 4.23 4.235 +0.12% -5.1%
Serbian dinar <EURRSD=> 93.017 92.847 -0.18% -3.8%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -28 basis points to 126bps over bmk*
4-yr T-bond CZ4YT=RR -11 basis points to +161bps over bmk*
8-yr T-bond CZ8YT=RR +9 basis points to +294bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -5 basis points to +370bps over bmk*
5-yr T-bond PL5YT=RR -2 basis points to +300bps over bmk*
10-yr T-bond PL10YT=RR -5 basis points to +275bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -26 basis points to +711bps over bmk*
5-yr T-bond HU5YT=RR -60 basis points to +626bps over bmk*
10-yr T-bond HU10YT=RR -51 basis points to +518bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1545 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
(Reporting by Reuters bureaus; Writing by Karolina Slowikowska
and Krisztina Than; Editing by Victoria Main)
