* Lower liquidity raises chances of swings
* Hungary may see more rate hikes
* Crown to weaken further on funding currency status
By Jan Lopatka and Jana Mlcochova
PRAGUE, Dec 10 (Reuters) - Poland's zloty reversed an
earlier uptick to lead losses in central Europe on Friday, with
inflation numbers and a fall in the forint adding to the chances
of more interest rate rises in Hungary.
Hungarian and Polish currencies have been underpinned by
hawkish comments form their central bankers in recent sessions,
but the settling of accounts in sparse holiday volumes could
open the way for potential larger swings, dealers said.
Traders are also eyeing risks from another bout of
turbulence in the euro zone's debt crisis in the build up to a
summit next Thursday and Friday, as well as concerns over the
U.S. deficit which has driven trade this week.
Data showed on Friday showed Hungarian consumer prices grew
by 4.2 percent year-on-year in November, as forecast but
cementing expectations that the central bank may tighten
interest rates further after a surprise increase last week.
Analysts say concerns over inflation and that unorthodox
fiscal moves will undermine the forint's appeal to investors
appear to have driven the November rise and some say the bank
may move again in December.
"The data in itself cannot decide whether the 2011 inflation
path will be better or worse than the central bank's pessimistic
forecast, so more rate hikes could be forthcoming," said Zoltan
Arokszallasi of Erste Bank.
"The chance of a rate hike is greater now than the chance of
the central bank holding rates in December."
The forint dipped 0.11 percent to 277.56 <EURHUF=> by 0845
GMT.
The zloty fell by 0.2 percent against the euro to 4.040 at
1056 GMT and a Warsaw-based dealer said he saw the unit trading
in a narrow range of 4.0150 and 4.0550."
Poland is expected to present proposals this month for
changes in the pension law likely to reduce the amount of state
transfers into private pension funds, helping the government
boost budget revenues. The plans have raised some uncertainty
over the impact on funds' investments.
HUNGARY MAY HIKE AGAIN
Hungary's right-of-centre government is expected to push
through a law on transferring pension savings to the state on
Monday, a move that has upset investors.
Hungary is effectively forcing millions of private pension
fund members with assets worth some 3 trillion forints to move
into the state-run pension system next year.
The Czech crown also dropped by 0.14 percent to 25.105 to
the euro <EURCZK=>, having underperformed the region in the past
days on the back of an outlook for an extended period of record
low interest rates.
"We are looking for this trend to continue, mainly on the
short-term horizon as the crown will increasingly become a
regional funding currency," Danske Bank said in a report.
Prokop said the unit could weaken to around 25.200 by
Christmas.
Czech parliament will vote on the 2011 budget next
Wednesday, with smooth approval expected for the plan to narrow
the fiscal gap to 4.6 percent of gross domestic product from 5.1
percent forecast for this year.
The Romanian opposition may also call a vote of no
confidence against the fragile centre-right government. The
opposition has repeatedly failed to dismiss the cabinet but it
has kept pressure on markets.
The leu was broadly flat at 1059 GMT at 4.298 to the euro.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25,103 25.07 -0.13% +4.84%
Polish zloty <EURPLN=> 4,041 4.032 -0.22% +1.56%
Hungarian forint <EURHUF=> 277,57 277.26 -0.11% -2.6%
Croatian kuna <EURHRK=> 7,386 7.386 0% -1.04%
Romanian leu <EURRON=> 4,296 4.298 +0.05% -1.36%
Serbian dinar <EURRSD=> 106,86 107.18 +0.3% -10.28%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -2 basis points to 84bps over bmk*
7-yr T-bond CZ7YT=RR -5 basis points to +76bps over bmk*
10-yr T-bond CZ9YT=RR -7 basis points to +84bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -1 basis points to +356bps over bmk*
5-yr T-bond PL5YT=RR -2 basis points to +338bps over bmk*
10-yr T-bond PL10YT=RR 0 basis points to +304bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -5 basis points to +648bps over bmk*
5-yr T-bond HU5YT=RR -2 basis points to +583bps over bmk*
10-yr T-bond HU10YT=RR +8 basis points to +497bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1208 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
(Editing by Patrick Graham)
