* FX, stocks reach new highs as risk appetite rises
* Polish bonds well bid, Czech demand down before eurobond
* Dealers see space for gains, but worry correction near
(Updates throughout)
By Dagmara Leszkowicz and Jason Hovet
WARSAW/PRAGUE, March 17 (Reuters) - Rising risk appetite
boosted emerging European assets on Wednesday, with the
Hungarian forint joining the zloty at 15-month highs and demand
at a Polish bond auction five times the offer.
Investors sought out emerging markets after the U.S. Federal
Reserve pledged to keep interest rates low while sounding a
positive note on the economic outlook, helping central Europe to
extend sharp gains made since the start of the year.
The forint rose to its highest since December 2008 and the
zloty inched back to a 15-month peak it touched last week, while
the Czech crown <EURCZK=> rose to a four-month high.
"We are testing big levels right now... just on this big
wave (in emerging markets)," a Prague dealer said.
The forint rose 0.9 percent by 1520 GMT to bid at 261.65 to
the euro and dealers said the 260 level was the market's next
target. The crown <EURCZK=> rose 0.4 percent to 25.377 to the
euro, with a close below 25.380 likely to trigger more gains.
The zloty <EURPLN=> added 0.2 percent since Tuesday's
domestic close, holding steady after data showed industrial
output rose faster than expected last month. []
Romania's leu <EURRON=> rose 0.2 percent, while the stock
exchange hit a fresh 19-month high <>. Other stock markets
rose, with Hungary <> at a 13-month high, and Prague <>
and Warsaw <> at two-month peaks.
Emerging markets have jumped over the past year, at least in
part because investors have used cheap money from western
central banks to buy more higher-yielding, riskier assets, and
Tuesday's Fed statement supported that trend.
MOVING QUICKLY
Strategists expect a rebound in exports to boost emerging EU
currencies in 2010. But some dealers expressed concern over the
sharp rises already seen this year, and policymakers have openly
worried about the impact it would have on recovery.
"I've always been a bull on the forint but the recent levels
are hardly justified by economic fundamentals, so I don't know
what to say," one Budapest-based dealer said.
Worries over the euro zone periphery's debt have rattled
Europe's markets, pushing many investors to position in central
Europe and its better growth prospects and fiscal position.
The zloty, backed by the only economy in the EU to have
stayed out of recession last year, has outpaced peers this year
with a 6 percent rise against the euro, compared to 3-4 percent
appreciation for the forint, leu and crown.
The stronger mood was also evident in a Polish auction of
floating-rate bonds that attracted 15.5 billion zlotys in bids,
five times the amount sold on Wednesday. []
But demand at a Czech 5-year bond auction fell short of the
number of bids in an inaugural auction in February, with market
speculation that the ministry will sell a euro-denominated bond
soon keeping many investors away. []
Hungarian short-term yields have dropped to 5-year lows this
week as central European bonds rally sharply on expectations of
interest rate cuts in Hungary and Romania, lower supply out of
the Czech Republic and strong fundamentals in Poland.
But dealers say a correction in debt markets could be near
because of the end of rate easing, upcoming elections in Hungary
and the Czech Republic, and as the region still struggles to
contain budget deficits amid a fragile economic recovery.
In minutes from their last meeting, Hungarian policymakers
gave the clearest signal since starting to cut rates in July
last year that the easing may be near an end. []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.377 25.478 +0.4% +3.71%
Polish zloty <EURPLN=> 3.868 3.876 +0.21% +6.1%
Hungarian forint <EURHUF=> 261.65 264.01 +0.9% +3.33%
Croatian kuna <EURHRK=> 7.263 7.251 -0.17% +0.64%
Romanian leu <EURRON=> 4.077 4.087 +0.25% +3.93%
Serbian dinar <EURRSD=> 99.48 99.85 +0.37% -3.62%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR -2 basis points to 85bps over bmk*
7-yr T-bond CZ7YT=RR +4 basis points to +126bps over bmk*
10-yr T-bond CZ10YT=RR +3 basis points to +107bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -4 basis points to +486bps over bmk*
5-yr T-bond HU5YT=RR +3 basis points to +433bps over bmk*
10-yr T-bond HU10YT=RR +3 basis points to +405bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1621 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
For related news and prices, click on the codes in brackets:
All emerging market news []
Spot FX rates Eastern Europe spot FX <EEFX=>
Middle East spot FX <MEFX=> Asia spot FX <ASIAFX=>
Latin America spot FX <LATAMFX=>
Other news and reports
World central bank news [] Economic Data Guide <ECONGUIDE>
Official rates [] Emerging Diary []
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(Reporting by Reuters bureaus, writing by Dagmara Leszkowicz
and Jason Hovet; editing by Stephen Nisbet)
