* Forint firms through 270/EUR, shy of attacking 268.70
* Investors eye Hungary reforms, 5-yr CDS falls 27 bps
* Bond yields fall 5-9 bps in Hungary, 6-11 bps in Poland
* Crown testing break of 24, last seen in Nov. 2008
* C.Europe stock markets gain 0.5-0.9 percent
(Adds new comments, updates prices)
BUDAPEST, Feb 2 (Reuters) - Hungary's forint extended gains
versus the euro on Wednesday, breaking through the key 270 level
to scale fresh four-month highs, while the Czech crown, central
Europe's top performer this year, tested November 2008 highs.
Hungary, which carries the highest premium for insuring
against default of any eastern EU member, saw its five-year
credit default swaps fall 27 basis points to 318 basis points as
concerns euro zone peripheral debt eased.
The forint, second behind the safe-haven crown with a 3.3
percent gain in 2011, has benefited from a cumulative 75 basis
point increase in Hungarian interest rates over the past three
months and increasingly bullish fiscal reform expectations.
The government is preparing a fiscal adjustment package
worth 600 billion to 650 billion forints ($3.05-3.30 billion) to
ensure the budget deficit remains low after 2012, when temporary
taxes worth 1.3 percent of GDP are due to be phased out.
At 1002 GMT, the forint <EURHUF=> was 0.4 percent stronger
versus the euro at 269.20.
It retreated from the day's high of 269.05 but may soon test
268.70, which market participants said is the next key technical
level, on the approaches of a nine-month high for the unit.
"I don't think that 268.70 would represent very strong
resistance now," said Janos Samu, analyst at Concorde in
Budapest.
Hungarian government bonds gave up some of their early gains
as the forint retreated, but were still lower by 5-9 basis
points from Tuesday at three-month lows.
"The forint could remain below 270 versus the euro if we
manage to close under that level," a Budapest-based currency
dealer said.
GROWTH HOPES SUPPORT
Central Europe's currencies have benefited from strength in
the euro <EUR=>, the region's reference currency, as well as
strong manufacturing data published on Tuesday which indicated
economic recovery was accelerating.
Stock markets in the region also rose, with bourses in
Budapest, Prague, Warsaw and Bucharest gaining 0.5-0.9 percent
by 1002 GMT. Rising manufacturing activity bodes well for
corporate earnings, although it also raises the likelihood of
further monetary tightening in the region.
"The expansion in the manufacturing sector is likely to
remain at this level during the first half of the year,"
Commerzbank said in a morning note.
"This could point towards a more rapid than expected rise in
inflation trends during the course of the year, which in turn
would require a tighter monetary policy."
The Czech crown <EURCZK=> shed 0.1 percent versus the euro
over the day but at 24.059 it stayed close to the key 24 level.
Dealers said levels around 23.700-23.800 would provide the
next major test, the crown having met resistance at those levels
when central European currencies started to retreat from record
highs at the end of 2008.
"I think people will start to look to buy (euros) around
23.900 to cover shorts," a Prague dealer said.
Dealers will also be eyeing comments after a meeting of the
Czech central bank on Thursday for clues on when it will start
to raise rates, the lowest in central Europe.
"The markets are seemingly pricing in somewhat of a hawkish
statement by the Czech central bank (CNB) following the
announcement," Danske Bank said in a note.
"Our own expectations are also on the hawkish side, as we
see the CNB moving closer to a rate hike and raising rates
possibly before year end -- indicated as the timing of a first
rate hike in the CNB's latest inflation report."
The Polish zloty <EURPLN=> was broadly flat at 3.901, while
the Romanian leu <EURRON=> was unchanged at 4.256.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2011
Czech crown <EURCZK=> 24.059 24.037 -0.09% +3.91%
Polish zloty <EURPLN=> 3.901 3.899 -0.05% +1.46%
Hungarian forint <EURHUF=> 269.2 270.3 +0.41% +3.26%
Croatian kuna <EURHRK=> 7.419 7.415 -0.05% -0.53%
Romanian leu <EURRON=> 4.256 4.256 0% -0.54%
Serbian dinar <EURRSD=> 103.91 104.403 +0.47% +1.94%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +2 basis points to 41bps over bmk*
7-yr T-bond CZ7YT=RR +1 basis points to +64bps over bmk*
10-yr T-bond CZ9YT=RR -2 basis points to +76bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -3 basis points to +494bps over bmk*
5-yr T-bond HU5YT=RR -7 basis points to +444bps over bmk*
10-yr T-bond HU10YT=RR -4 basis points to +398bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1102 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
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(Reporting by Reuters bureaus; Writing by Gergely Szakacs;
Editing by Catherine Evans)
