* FX weaken, euro zone periphery worries loom
* Markets eye rate moves by Czech Rep, ECB
* Dealers see chances for correction after recent rally
(adds fixed income, quotes)
By Marius Zaharia
BUCHAREST, Feb 4 (Reuters) - Central European currencies
fell early on Thursday, with debt concerns over the euro zone's
periphery coming back into focus ahead of interest rates
decisions by the Czech central bank and the ECB.
Both central banks are likely to keep rates steady at 1
percent as the recovery is expected to be feeble and further
restrained in the euro zone by fiscal woes in Greece, Portugal
and Spain. [] [].
At 1034 GMT, the Polish zloty <EURPLN=> and the Hungarian
forint <EURHUF=> were 0.4 percent weaker, the Romanian leu
<EURRON=> was 0.3 percent down, while the Czech crown <EURCZK=>
was bid 0.2 percent lower.
"The euro periphery is hurting sentiment, bond spreads for
Greece, Portugal and Spain are wider," one dealer in Bucharest
said.
Czech fixed income markets will be watching for clues as to
when policymakers may start tightening monetary policy and at
what pace. Dealers say three quarter point hikes are priced in
by the market, with some saying that may be too hawkish.
The bank will release its quarterly macroeconomic outlook
with the decision.
"We expect the new prognosis to point to higher rates
sometimes in H2 2010, the main scenario possibly counting with
official rates at 1.75 percent at the end of the year (we expect
1.50 percent in our prognosis)," Komercni Banka dealers said.
Hungarian and Polish bonds ticked lower in line with the
currencies. Romania tenders 500 million lei in five-year
treasury bonds later in the day.
Elsewhere in the region, Serbia's central bank left its key
rate on hold at 9.5 percent ahead of an IMF mission to review
its performance [].
The dinar <EURRSD=> was 0.3 percent weaker on Thursday,
after dealers said the central bank intervened on Wednesday for
the eleventh time this year to prop up the battered currency
[].
CORRECTION RISK
Traders said a further fall in risk appetite could trigger a
larger correction in the region after a recent rally sent the
zloty and the leu to 13-month highs.
The zloty pulled back above the psychological 4.0 per euro
level which it broke earlier this week.
"We were quite surprised how easily the pair came back above
4.00 EUR/PLN," KBC said in a note. "That puts into question our
recent conclusion about a final break through that barrier.
"If we do not see the comeback below 4.00 EUR/PLN by the end
of the week, the short term perspectives for the zloty can
deteriorate pretty fast as many market players are currently
long in zlotys."
Some analysts say the region looks like a safer bet than
some euro zone states, as countries such as Hungary or Poland
have started a fiscal tightening process before Greece or
Portugal.
In response to austerity measures, Standard & Poor's
improved the ratings outlook of Romania and Lithuania to stable
from negative this week, and Romania's central bank found room
to cut interest rates by 50 basis points to 7 percent on
Wednesday [].
Hungary and Romania are seen easing borrowing costs further,
while rate hikes are expected in Poland and Czech Republic later
this year.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 26.081 26.03 -0.2% +0.91%
Polish zloty <EURPLN=> 4.023 4.008 -0.37% +2.01%
Hungarian forint <EURHUF=> 272.34 271.19 -0.42% -0.73%
Croatian kuna <EURHRK=> 7.323 7.314 -0.12% -0.19%
Romanian leu <EURRON=> 4.117 4.104 -0.32% +2.92%
Serbian dinar <EURRSD=> 98.59 98.31 -0.28% -2.75%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR -8 basis points to 95bps over bmk*
7-yr T-bond CZ7YT=RR +3 basis points to +144bps over bmk*
10-yr T-bond CZ10YT=RR -2 basis points to +128bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +3 basis points to +380bps over bmk*
5-yr T-bond PL5YT=RR +2 basis points to +324bps over bmk*
10-yr T-bond PL10YT=RR +2 basis points to +288bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +2 basis points to +542bps over bmk*
5-yr T-bond HU5YT=RR +6 basis points to +493bps over bmk*
10-yr T-bond HU10YT=RR +11 basis points to +448bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1234 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Marius Zaharia;
Editing by Patrick Graham)
