* Risk-off trade pulls CEE down
* Poland holds rates, bonds firmer on short end
* Hungary spending plan seen positive but details required
(Updates prices, adds Polish c.bank)
By Sandor Peto and Jason Hovet
BUDAPEST/PRAGUE, Nov 23 (Reuters) - Emerging European
currencies dipped on Tuesday as investors pulled back from
riskier assets, and the zloty eased a touch after the Polish
central bank left interest rates unchanged.
The rate decision was in line with the majority expectation
but disappointed some who bet Poland's central bank would be the
first in central Europe to start undoing two years of policy
loosening. Bond prices edged up after the rate decision.
Markets looked to safer assets, like the U.S. dollar, on
Tuesday following an artillery clash between North and South
Korea. The incident dented investors' appetite for risk,
including in central Europe which had already been hurt by
continued uncertainty over Ireland's debt crisis.
An announcement by Hungary, which has struggled to convince
investors over its fiscal plans, that it would launch a package
of savings measures totalling as much as $4 billion in the
spring did little to boost markets.
The zloty <EURPLN=> dropped 0.4 percent and the Hungarian
forint <EURHUF=> lost 0.3 percent to bid at 275.74 to the euro
by 1622 GMT. Central European stocks fell by up to 1.7 percent,
with Prague <> at a nearly eight-week low.
Hungarian government bonds weakened, sending the 10-year
yield to a 12-week high. Shorter-dated Polish bonds firmed,
sending yields down, after the rate meeting.
"The decision was in line with markets' expectations so I
expect the relief rally now," a Warsaw-based bond dealer said.
Only eight of 18 analysts polled by Reuters last week had
expected Poland to start tightening this month, with the rest
forecasting a rate rise sometime in the first quarter of 2011.
Analysts have said forward rate agreements (FRA) have been
pricing in too much tightening next year, but rates have slowly
ticked down around 5 basis points this week. <PLNFRA>
STABLE RATES
Central European currencies have weakened this month due to
fears the euro zone periphery's battle against high debt will
spread to Portugal or Spain after first Greece, then Ireland
have needed emergency funds this year.
But a new round of quantitative easing by the United States
is expected to push investors into emerging markets in the
coming months as they chase higher growth and yields. The zloty
would benefit from this given Poland's growth outlook is good
relative to its EU peers, analysts said.
This has been seen as a major concern for Polish rate
setters, keeping a slim majority on the monetary policy council
(MPC) leaning toward stable rates for now.
Central bank head Marek Belka said after the decision that
the zloty had "great potential" to appreciate. []
"The MPC will probably wait for a decision until the release
of the central bank's new inflation report (in January) or the
moment when macroeconomic indicators clearly show that a
scenario threatening inflation in the future is emerging," said
Piotr Bielski, economist at bank Zachodni WBK.
In Hungary, Economy Minister Gyorgy Matolcsy said the
government would present a reform package in February to deliver
new savings worth 600 billion-800 billion forints ($3 billion-$4
billion). []
Traders said markets needed more details about the plan.
Hungary's and neighbouring Romania's budget and debt trends
have often made their markets more vulnerable to news about the
euro zone debt crisis than Czech and Polish markets.
Romania's leu <EURRON=> fell 0.3 percent versus the euro to
4.31. The Czech crown <EURCZK=> was flat after earlier gains,
benefiting from safe-haven flows within the region but still
barely holding on the strong side of the 24.70 resistance level.
The crown has led gains in central Europe this year, backed
by fundamentals and the government's budget-cutting drive.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.685 24.689 +0.02% +6.62%
Polish zloty <EURPLN=> 3.965 3.948 -0.43% +3.51%
Hungarian forint <EURHUF=> 275.74 274.99 -0.27% -1.95%
Croatian kuna <EURHRK=> 7.398 7.369 -0.39% -1.2%
Romanian leu <EURRON=> 4.31 4.297 -0.3% -1.68%
Serbian dinar <EURRSD=> 106.86 106.75 -0.1% -10.28%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +8 basis points to 84bps over bmk*
7-yr T-bond CZ7YT=RR +15 basis points to +85bps over bmk*
10-yr T-bond CZ9YT=RR +8 basis points to +105bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +6 basis points to +378bps over bmk*
5-yr T-bond PL5YT=RR +10 basis points to +360bps over bmk*
10-yr T-bond PL10YT=RR +7 basis points to +330bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +21 basis points to +609bps over bmk*
5-yr T-bond HU5YT=RR +20 basis points to +584bps over bmk*
10-yr T-bond HU10YT=RR +22 basis points to +504bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1725 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 and Jason
Hovet; editing by Stephen Nisbet)
