* Fx, stocks, bonds ease as China moves to cut liquidity
* Hungary T-bill auction yield drops on cbanker comments
By Sandor Peto
BUDAPEST, Jan 12 (Reuters) - Central European assets
extended early losses on Tuesday as the dollar's firming and
China's measure to cut the liquidity of local banks overshadowed
optimism following Monday's Polish eurobond issue.
Currencies, stocks and government bonds eased in the
European Union's emerging markets as the dollar's moderate
rebound indicated lower risk appetite.
The losses widened after China's central bank raised banks'
reserve requirements, a reminder that global liquidity is likely
to tighten this year, cutting support to emerging market assets.
"The first reaction is that this was bad news and the fall
also occurred due to earlier positioning which is adjusted now,"
one Budapest-based currency dealer said.
But investors will have some attractive Central European
assets to pick in the short term, dealers and analysts said.
Regional assets started the year in a positive mood and
extended gains on Monday as Poland placed three billion euros
worth of 15-year sovereign bonds.
Government bonds retreated late on Monday and early on
Tuesday, with Hungarian bonds hit the most, giving up some of
the strong gains posted earlier this year.
Hungarian bond yields rose by up to 20 basis points, but an
auction of three-month Treasury bills attracted strong demand
and the average yield fell to 5.78 percent from 5.91 percent at
and auction held last week.[]
Traders said the fall reflected expectations for further
cuts in the central bank's 6.25 percent base rate, reinforced by
comments by rate setter Tamas Banfi who said the base rate could
fall below analysts' 5.5 percent forecast. []
"The comments also helped ease the forint<EURHUF=>," one
currency dealer said.
The forint eased by 0.1 percent against the euro by 1151
GMT. The losses of the Polish zloty <EURPLN=>, the region's most
liquid unit, were deeper, at 0.5 percent, while the Czech crown
<EURCZK=>, the region's funding currency shed 0.4 percent.
Romania's leu <EURRON=> gave up 0.3 percent after firming to
10-month highs earlier this week.
Hungary and Romania's more risky markets compensate
investors with much higher yields, but the two central banks are
expected to reduce interest rates further this year.
Romania's annual inflation was flat at 4.7 percent in
November, slightly lower than forecast, new figures showed on
Tuesday.
"We do believe that rate cuts will continue through the year
including at the next (rate-setting) meeting in February where
we expect 50 basis points cut (from 7.5 percent)," ING analyst
Nicolaie Alexandru-Chiedesciuc said.
The leu's high carry still remains attractive.
The leu can get additional support from a likely decision
later this week by Romania's two-house parliament to approve a
cost-cutting 2010 budget this week, a key condition to unlock a
stalled 20 billion euro IMF-led aid.
Polish government bond yields rose by a few basis points.
But stronger fundamentals than elsewhere in the region could
buoy Czech and Polish assets.
"High quality CEE sovereigns such as Poland and Czech
Republic offer good alternatives to real-money investors,"
Danske Bank said in a note on the region's markets.
The region's main equity indices fell by 0.5-0.9 percent,
but analysts said stocks were likely to return to their earlier
rising trend.
Erste Bank said in its latest quarterly strategy report that
Romanian equities, after recent underperformance, showed the
highest upside potential.
Polish and Czech stocks showed 20-30 percent upside
potential, while Hungarian equities, after leading the region
last year with a 70 percent rise in main index <>, showed
limited potential, Erste said.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 26.243 26.14 -0.39% +0.29%
Polish zloty <EURPLN=> 4.081 4.062 -0.47% +0.56%
Hungarian forint <EURHUF=> 267.52 267.18 -0.13% +1.06%
Croatian kuna <EURHRK=> 7.268 7.276 +0.11% +0.57%
Romanian leu <EURRON=> 4.136 4.123 -0.31% +2.45%
Serbian dinar <EURRSD=> 97.15 97.27 +0.12% -1.31%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +5 basis points to 69bps over bmk*
7-yr T-bond CZ7YT=RR +3 basis points to +107bps over bmk*
10-yr T-bond CZ10YT=RR -4 basis points to +98bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +1 basis points to +386bps over bmk*
5-yr T-bond PL5YT=RR +4 basis points to +339bps over bmk*
10-yr T-bond PL10YT=RR +5 basis points to +281bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +1 basis points to +535bps over bmk*
5-yr T-bond HU5YT=RR +4 basis points to +502bps over bmk*
10-yr T-bond HU10YT=RR +4 basis points to +425bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1251 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 []
Top events [] Diaries [] Diaries Index []
(Reporting by Reuters bureaus, writing by Sandor Peto)
(Reporting by Sandor Peto; Editing by Ron Askew)
