* Zloty bought by state-owned bank, market sources say
* Lower liquidity raises chances of FX swings
* Hungary awaits pension vote, may see more rate hikes
* Crown to weaken further on funding currency status
(Adds fresh comments, prices)
By Jana Mlcochova and Sandor Peto
PRAGUE/BUDAPEST, Dec 10 (Reuters) - Central European
currencies mostly fell on Friday but the Polish zloty recovered
some ground as sources said state-owned BGK bank bought it
against the euro.
Low liquidity boosted volatility in the Czech crown and
Hungarian forint as the market awaited a crucial vote on the
reversal of Hungary's pension reforms on Monday.
The zloty <EURPLN=> -- which led losses this week with a 1.3
percent decline -- was down less than 0.1 percent against the
euro by 1516 GMT to 4.035, up from an intraday low of
4.0447.
Market sources said BGK bank bought zloty in the market.
A weak zloty at the year-end could boost the value of state
debt, which is partly denominated in foreign currency, possibly
pushing it through the threshold beyond which the government is
required by law to cut spending. [] []
The crown <EURCZK=> fell 0.4 percent against the euro to
25.171 and the forint <EURHUF=> shed 0.4 percent to 278.38,
while the Romanian leu <EURRON=> firmed 0.1 percent to 4.293.
Polish government bonds firmed slightly, Hungarian bonds
eased at the long end of the curve and equities were mixed.
Traders said the euro zone debt crisis continues to weigh on
risk appetite, while low liquidity ahead of the year-end could
continue to cause unusual intra-day swings in forex cross rates
within central Europe.
HUNGARY AWAITS PENSION VOTE
Looking ahead, a parliamentary vote on the reversal of
Hungary's pension reform on Monday could weigh on sentiment, but
positioning could prevent a lasting fall in the forint, traders
said.
Hungary has often confounded investors this year with its
unorthodox economic policy which has lead to the accumulation of
positions against the forint, one Budapest-based dealer said.
The government is effectively forcing millions of private
pension fund members with assets worth some 3 trillion forints
($14.38 billion) to move into the state-run pension system next
year, cutting the budget deficit but triggering concerns over
the long term.
The zloty, which most analysts believe has much better
prospects due to sounder economic fundamentals, underperformed
the forint this week even though Moody's downgraded Hungary's
debt to the brink of junk status on Monday.
"Positioning is a lord," one Budapest-based dealer said,
adding that a few big foreign banks reversed long zloty/forint
positions early this week. "Today we saw one bank on the other
side of that trade."
The forint fell even though data on Friday showed that
annual inflation in December was stuck at 4.2 percent, cementing
expectations the central bank (NBH) will tighten interest rates
further after a surprise increase last week.
The Czech crown lost almost as much as the zloty this week
on expectations for an extended period of record low interest
rates, and technical factors.
"We got above the 200-day moving average which held firm at
25.120 and from there on to 25.300 there is no other key level,
so it should test that level soon," a Prague-based dealer said.
The Czech parliament is expected on Wednesday to approve the
2011 budget, which aims to narrow the fiscal gap to 4.6 percent
of gross domestic product from an estimated 5.1 percent this
year.
The Romanian opposition could call a no-confidence vote
against the fragile centre-right government, which has already
survived two no-confidence votes this year, over social reforms.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.171 25.07 -0.4% +4.56%
Polish zloty <EURPLN=> 4.035 4.032 -0.07% +1.71%
Hungarian forint <EURHUF=> 278.38 277.26 -0.4% -2.88%
Croatian kuna <EURHRK=> 7.403 7.386 -0.23% -1.27%
Romanian leu <EURRON=> 4.293 4.298 +0.12% -1.3%
Serbian dinar <EURRSD=> 106.42 107.18 +0.71% -9.9%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -4 basis points to 81bps over bmk*
7-yr T-bond CZ7YT=RR -4 basis points to +78bps over bmk*
10-yr T-bond CZ9YT=RR -2 basis points to +88bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -4 basis points to +355bps over bmk*
5-yr T-bond PL5YT=RR -6 basis points to +334bps over bmk*
10-yr T-bond PL10YT=RR -3 basis points to +302bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -7 basis points to +647bps over bmk*
5-yr T-bond HU5YT=RR 0 basis points to +585bps 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 1616 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
(Editing by Susan Fenton)
