* Currencies, stocks fall sharply
* IMF mission begins review of Romania IMF deal
* Poland expected to hold rates steady at 3.5 percent
(adds new levels, fixed income, stocks)
By Marius Zaharia
BUCHAREST, Oct 28 (Reuters) - Central European currencies
extended losses and fell to multi-month lows on Wednesday
because of a rising dollar, while markets awaited a central bank
rate decision in Poland.
Hungary's forint <EURHUF=> was 0.9 percent down at 1025 GMT
to trade at a 1-month low, and Poland's zloty <EURPLK=> was down
0.7 percent to a two week low. The Czech crown <EURCZK=> was 0.2
percent weaker on the day to hit a fresh 4-month low, as local
markets were closed for a holiday.
The Romanian leu <EURRON=>, pressured by political
uncertainty following the collapse of the government earlier
this month, traded at seven-month lows, but the daily move was
less spectacular.
It fell 0.2 percent from the previous close, with investors
fearing a central bank intervention close to 4.3 per euro.
Currencies started to weaken on Tuesday, as the region was
hit by a sharp rise in the dollar, which some analysts said
could be the trigger of a larger correction as the region is
under pressure from an expected slow recovery, budget imbalances
and political woes.
"It's because of the strong dollar and the bourses in the
red," one dealer in Bucharest said. "People are rushing to cut
off risk because risk positions were overcrowded."
Regional bourses were also down 1.4-2.5 percent, with
Bucharest's BET <> leading losses. Hungarian bonds were
weaker, with yields rising 5-10 basis points across the curve to
levels of more than half a point above last week's lows.
In Poland, where the central bank is widely expected to
leave rates flat at an all-time low of 3.5 percent later on
Wednesday, yields rose 2-3 basis points from the previous close.
"Today's decision is unlikely to affect the fixed income
market, but the statement released afterwards may impact bonds
as the market expects the MPC to change its informal bias (to
neutral from easing)," said Tomasz Bielanowicz, dealer at PKO
BP.
IMF MISSION
In Romania, markets fear the political turmoil will hurt the
country's chances of keeping IMF cash flowing.
An IMF mission starts its second review of Romania's 20
billion euro aid agreement as parliament holds hearings for
ministers proposed by Prime Minister designate Lucian Croitoru,
who is widely expected to fail to get political backing.
Analysts say emerging European currencies are being weighed
down by a combination of growing budget deficits, concerns over
IMF deals in Ukraine, Romania and Latvia and expectations that
some countries will cut interest rates further.
The World Bank sees the European Union's 10 ex-communist
economists contracting by 4.2 percent as a whole this year
before growing slightly in 2010 [].
Investors concerns centre around worries that the fast
growth the region has seen in previous years may return slowly
-- making it harder for governments to put budgets straight and
finance growing debt burdens.
Markets will also eye the corporate results season for proof
the rise of bad debt has slowed in the quarter to September
[].
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.254 26.201 -0.2% +1.9%
Polish zloty <EURPLN=> 4.247 4.216 -0.73% -3.11%
Hungarian forint <EURHUF=> 271.72 269.29 -0.89% -3.01%
Croatian kuna <EURHRK=> 7.225 7.218 -0.1% +1.94%
Romanian leu <EURRON=> 4.299 4.29 -0.21% -6.62%
Serbian dinar <EURRSD=> 93.331 93.113 -0.23% -4.13%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +39 basis points to 127bps over bmk*
7-yr T-bond CZ7YT=RR +1 basis points to +103bps over bmk*
10-yr T-bond CZ10YT=RR +2 basis points to +94bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +2 basis points to +371bps over bmk*
5-yr T-bond PL5YT=RR +6 basis points to +328bps over bmk*
10-yr T-bond PL10YT=RR +4 basis points to +292bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +5 basis points to +554bps over bmk*
5-yr T-bond HU5YT=RR +13 basis points to +494bps over bmk*
10-yr T-bond HU10YT=RR +12 basis points to +425bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1225 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus; writing by Marius Zaharia;
editing by Patrick Graham)
