* Yuan news drives zloty to 1-month high, other FX up
* Hungary central bank seen holding interest rates
* Romania to auction T-bills, 7 pct seen as yield cutoff
(Adds quotes, details, bonds)
By Jason Hovet
PRAGUE, June 21 (Reuters) - Poland's zloty jumped to a
one-month high on Monday to lead a rise in central European
currencies, stocks and bonds after China's decision to loosen
the yuan's dollar peg steered investors to riskier assets.
The yuan rose to its strongest since July 2005, easing
tensions with the West and giving a boost to risk appetite that
analysts said would help kick-start more appreciation in central
Europe. []
The region has struggled to shake off worries over the euro
zone's debt crisis spreading, despite lower debt levels and
better growth prospects, but volatility has dropped slightly in
the past week, raising asset prices.
"We are again bullish on central and eastern European
currencies," said Murat Toprak, emerging markets strategist at
Societe Generale.
"Global volatility is declining and the decline will trigger
some short-covering, so that will be positive for these
currencies. The Chinese move is just adding to this positive
view as it is clearly boosting risk appetite."
Stock markets rose 1.3-2.3 percent led by Bucharest <>,
and the Thomson Reuters Equity Emerging Markets Europe Index
<.TRXFLDEETU> rose 1.2 percent.
The Hungarian forint <EURHUF=> rose 0.4 percent to bid at
278.27 per euro, around a 2-1/2 week high. The forint's strength
lifted government bonds, with yields down 7-20 basis points.
The Romanian leu <EURRON=> rose 0.4 percent and the Czech
crown <EURCZK=>, the region's top performer this year, rose 0.1
percent. The zloty <EURPLN=> jumped 0.6 percent after the first
round of a presidential election on Sunday. []
Acting president Bronislaw Komorowski won but faces a tight
runoff vote against Jaroslaw Kaczynski, twin brother of the
former president killed in a plane crash in April. The likely
tight result pushed bond yields up 3-6 basis points.
EXPORT BOOST?
Analysts said China's decision could help growth in
export-heavy emerging European countries, which are part of the
supply chain for euro zone states whose goods will become
cheaper in Asia because of the stronger yuan.
"The outlook still depends on recovery in western Europe and
central banks in the region. We see gradual appreciation (to the
end of the year) of these currencies, but at a slow pace," said
Ulrich Leucthmann, head of foreign exchange research at
Commerzbank, who doubted the yuan news would have "much of a
lasting effect".
Societe Generale's Toprak said better sentiment will boost
central Europe's currencies, with the bank targeting the zloty
at 3.95 to the euro and the forint at 270 per euro in two to
three weeks.
The zloty and Czech crown are seen by analysts as posting
the biggest gains going into next year with their economies
leading an export-driven regional recovery. []
A Reuters poll on June 3 forecast the crown at 25 per euro
in six months, and the zloty at 3.81, 2.9 and 5.8 percent above
current levels. <CEEFXPOLL01>
Markets were also watching a central bank decision in
Hungary and debt tender later in Romania -- two of the more
vulnerable CEE states.
Hungary's central bank is expected to hold rates at a record
low of 5.25 percent in its first meeting since government
officials rattled markets with comments suggesting the country
could develop Greek-style debt problems. []
Romania tenders one-year bills and traders widely expect the
finance ministry to reject bids at yields above 7 percent.
Uncertainty over the government's ability to enforce sharp
wages and pensions cuts has pushed yields up on the secondary
debt market in recent weeks. The ministry has rejected all bids
or scaled back issuance in tenders since May. []
"In the long term, this has proved to be a poor strategy," a
Bucharest trader said. "Yields are close to record lows in
Romania and so the ministry should issue long-term debt as much
as possible. But they are not."
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.709 25.737 +0.11% +2.37%
Polish zloty <EURPLN=> 4.029 4.054 +0.62% +1.86%
Hungarian forint <EURHUF=> 278.27 279.29 +0.37% -2.85%
Croatian kuna <EURHRK=> 7.197 7.2 +0.04% +1.56%
Romanian leu <EURRON=> 4.222 4.24 +0.43% +0.36%
Serbian dinar <EURRSD=> 103.87 103.527 -0.33% -7.69%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -2 basis points to 151bps over bmk*
7-yr T-bond CZ7YT=RR -2 basis points to +161bps over bmk*
10-yr T-bond CZ9YT=RR -4 basis points to +148bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +1 basis points to +409bps over bmk*
5-yr T-bond PL5YT=RR +2 basis points to +371bps over bmk*
10-yr T-bond PL10YT=RR -2 basis points to +310bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -19 basis points to +614bps over bmk*
5-yr T-bond HU5YT=RR -11 basis points to +558bps over bmk*
10-yr T-bond HU10YT=RR -7 basis points to +478bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1114 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 []
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(Reporting by Reuters bureaus, writing by Jason Hovet; Editing
by Ruth Pitchford)
