* Leu slightly off 7-month lows after no-confidence vote
* Zloty pressured by political uncertainty
* Hungarian bonds firm as CPI data supports rate cut view
(Updates prices, adds Hungarian bonds, Latvia)
By Dagmara Leszkowicz and Jason Hovet
WARSAW/PRAGUE, Oct 13 (Reuters) - The Romanian leu trimmed
some losses after parliament voted to topple the government, but
it stuck near seven-month lows and the price of insuring the
country's debt rose on concerns over the country's IMF package.
Dealers said investors booked profits after the widely
expected downing of the cabinet. Markets were also looking for
signs whether the central bank would prop up the leu, they said,
although there was no indication intervention was taking place.
By 1521 GMT, the leu <EURRON=> was bid at 4.301 to the euro,
down 0.7 percent from the previous day's close. Romanian 5-year
CDSs, which reflect the price of insuring a country's debt, rose
to 229.2 basis points, versus 218 earlier in the day.
"I am convinced that the central bank is constantly
monitoring the market and if the leu weakens past a certain
level it will intervene," a Bucharest dealer said. "Some say the
level is 4.3, others 4.35, but it is hard to say."
Dealers have said that the bank has been defending the leu
in recent weeks. The bank has declined to comment.
Romanian deputies voted 258 to 176 on Tuesday to end
outgoing Prime Minister Emil Boc's cabinet after his coalition
split earlier this month. []
Analysts say political deadlock may harm fiscal and budget
cuts needed to ensure the International Monetary Fund continues
to disburse aid from its 20 billion euro anti-crisis package.
"Most important is what this means for the future of the IMF
programme, in the context of Romania's previous failed IMF
programmes," said Neil Shearing, emerging Europe economist at
Capital Economics.
He said a key question is what government can appear out of
this, and if it will be strong enough. If not, he said, it could
hurt the budget, hitting the leu and limiting room for needed
interest rate cuts to stimulate the battered economy.
POLITICS START TO WEIGH
Romania is the latest country in eastern Europe to see
political instability as governments work to get hard-hit
economies back on track in the face of rising joblessness.
Latvia has struggled to rein in its budget to protect its
IMF package, raising fears of spillover to central Europe if the
Baltic state was forced to devalue its currency. []
Meanwhile, Czech and Hungarian goverments have both fallen
in the past year. In Poland, Prime Minister Donald Tusk ditched
three ministers and sacked the head of an anti-graft body last
week to draw a line under a lobbying scandal that has harmed his
centre-right government's image. []
On the weekend, Polish media said the anti-graft body had
sent a document to the Prime Minister suggesting there might
have been irregularities in the attempt to sell shipyards.
Dealers said some of the political uncertainty was now
weighing on the zloty. The unit <EURPLN=> bid 0.2 percent lower
at 4.235 to the euro on Tuesday.
Elsewhere, the Hungarian forint was down 0.5 percent, and
the Czech crown <EURCZK=> dropped back a similar amount to
25.945 per euro. It had benefited from tempered rate cut
expectations after August industrial output data rose on Monday.
A Reuters poll showed on Monday that analysts expect the
Czech central bank has already ended its easing cycle despite
weak inflation and comments by some leading board members
suggesting there was still a debate on rate cuts. []
Benign inflation data in Hungary on Tuesday supported rate
cut expectations there dropping bond yields 5-10 basis points.
In a September Reuters poll on interest rates, the median
forecast from analysts showed rates there bottoming out at 5.75
percent next year, from today's 7.5 percent.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.945 25.797 -0.57% +3.11%
Polish zloty <EURPLN=> 4.235 4.225 -0.24% -2.83%
Hungarian forint <EURHUF=> 269.17 267.92 -0.46% -2.09%
Croatian kuna <EURHRK=> 7.25 7.25 0% +1.59%
Romanian leu <EURRON=> 4.301 4.272 -0.67% -6.66%
Serbian dinar <EURRSD=> 92.9 92.93 +0.03% -3.68%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR -4 basis points to 139bps over bmk*
7-yr T-bond CZ7YT=RR 0 basis points to +154bps over bmk*
10-yr T-bond CZ10YT=RR -16 basis points to +132bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -2 basis points to +525bps over bmk*
5-yr T-bond HU5YT=RR -2 basis points to +484bps over bmk*
10-yr T-bond HU10YT=RR -8 basis points to +438bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1723 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus; Writing by Dagmara
Leszkowicz; Editing by Victoria Main)
