* FX rally paused but sentiment remains bullish
* Investors eye IMF's review in Romania
* Bonds steady, market awaits Polish bonds tender due Wed
(Adds fixed income, detail)
By Dagmara Leszkowicz
WARSAW, Aug 3 (Reuters) - Central Europe's currency rally
paused on Tuesday, with markets looking to signals on Romania's
IMF deal and interest rates later this week for fresh direction
after a drive higher based mainly on global moves.
Most traders remained bullish on the outlook for the region
and the Czech crown was still trading close to 20-month highs
and the Polish zloty near 11-week-highs.
But European stocks drifted lower in early trade, signalling
a halt in a rally spurred by stronger company results and
improved economic data.
"Investors' eyes are still directed on stocks," said one
Warsaw-based dealer. "Risk appetite returned and as long as
stocks are strong, currencies will be on the stronger side as
well."
By 0904 GMT the crown <EURCZK=> was virtually flat, while
Poland's zloty <EURPLN=> fell some 0.2 percent against the euro
and Hungary's forint <EURHUF=> firmed by a similar amount.
Stocks in the region opened mixed, with Budapest's BUX
<> and Warsaw WIG20 <> rising some 0.3 percent and
Prague's PX <> down some 0.4 percent.
Romania's leu <EURRON=> was flat at 4.24 to the euro.
The International Monetary Fund's review of Romania's 20
billion euro aid deal is expected to end on Wednesday and
dealers said the market had already priced in the likely
disbursement of a 900 million euro tranche.
Romania's central bank also decides on interest rates on
Wednesday.
RATES
The Czech central bank is expected to keep rates on hold on
Thursday, with dealers saying the crown <EURCZK=> may ease
further to around 25 per euro.
In Poland, a member of the central bank's Monetary Policy
Council (MPC) said a government plan to raise VAT would boost
inflation, but not necessarily lead to a rise in interest rates.
[]
The VAT hike is part of a plan -- set to be approved by the
cabinet on Tuesday -- to cut the general government deficit to
the European Union's limit of 3 percent of gross domestic
product (GDP) in 2013 -- a year later than had been promised --
and keep public debt below 55 percent of GDP.
An analyst from rating agency Standard&Poor's said the
country is doing enough to safeguard its A- rating and stable
outlook, adding that he expected the country's debt level to
stabilise. []
The Polish central bank has kept its benchmark rate at an
all-time low of 3.5 percent since June 2009 and markets expect
its 10-strong policy committee to raise borrowing costs by 25
basis points later in the year in response to an anticipated
pick-up in inflation in the medium term.
Expectations for quicker rate hikes lifted Polish bond
yields around 4-5 basis points higher last week, but dealers
said papers were relatively steady on Tuesday ahead of a bond
tender due on Wednesday.
Adrian Skubij, dealer at ING bank in Warsaw, said despite
the rate hike expectations, he saw signs of healthy demand for
the Wednesday tender, "maybe because the debt supply for August
is relatively small."
Poland's finance ministry will offer 3.0-6.0 billion zlotys
worth of 2-year and 5-year bonds at Wednesday's tender, with
results expected at 1000 GMT.
In Hungary, bonds were also steady in thin trade ahead of
an auction of 3-month discount treasury bills at 0930 GMT which
was expected to attract sufficient demand.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.639 24.645 +0.02% +6.81%
Polish zloty <EURPLN=> 3.986 3.98 -0.15% +2.96%
Hungarian forint <EURHUF=> 280.51 281.04 +0.19% -3.62%
Croatian kuna <EURHRK=> 7.231 7.229 -0.03% +1.08%
Romanian leu <EURRON=> 4.24 4.241 +0.02% -0.06%
Serbian dinar <EURRSD=> 106.67 106.73 +0.06% -10.12%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +2 basis points to 100bps over bmk*
7-yr T-bond CZ7YT=RR -7 basis points to +93bps over bmk*
10-yr T-bond CZ9YT=RR +3 basis points to +104bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +3 basis points to +397bps over bmk*
5-yr T-bond PL5YT=RR +4 basis points to +375bps over bmk*
10-yr T-bond PL10YT=RR +4 basis points to +319bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +3 basis points to +580bps over bmk*
5-yr T-bond HU5YT=RR +3 basis points to +540bps over bmk*
10-yr T-bond HU10YT=RR +3 basis points to +449bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1104 CET.
Currency percent change calculated from the daily domestic
close at 1600 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 Dagmara
Leszkowicz; editing by Patrick Graham/Ruth Pitchford)
