* CEE gains on better financing conditions, global mood
* Latvia-IMF worries, next week's rate moves pose risks
(Updates throughout)
By Marton Dunai and Marius Zaharia
BUDAPEST/BUCHAREST, July 24 (Reuters) - Central European
currencies extended this week's gains to close to their
strongest levels this year on Friday, but Latvia worries and
possible rate cuts next week mean a correction may be just
around the corner.
Currencies have been gaining in line with stocks and bonds
this week, mostly on the back of increasing global risk appetite
and improved financing conditions for the region as shown by
well-bid debt tenders.
Analysts say the recent strength of Hungary's forint, may
strengthen the case for a 50 basis point interest rate cut to 9
percent on Monday. []
At 1335 GMT, the forint <EURHUF=> and the zloty <EURPLN=>
were 0.7 percent up on the day, while the crown <EURCZK=> and
the leu <EURRON=> traded 0.4 percent stronger.
The crown hit its highest level this year, while the zloty
and the forint hit six-month highs.
Stocks were also stronger around the region, with Warsaw's
<> and Bucharest's <> hitting nine-month highs.
Polish and Hungarian government bonds firmed slightly.
"Sentiment has improved substantially in favour of CEE ...
supported by both global factors ... and local factors (such as)
solid fiscal consolidation plans, quick narrowing of current
account deficits, less external financing assistance needed,"
Erste said in a note.
"Given the surging HUF, the (central bank) should be even
more comfortable in delivering a 50 basis points cut on Monday."
Poland is expected to hold rates next week, but analysts say
further cuts may be on the cards later this year.
RISK OF A PULL BACK
Despite bullish markets, Polish and Hungarian retail figures
this week reminded that economic pain is still nagging, and
Latvia's struggle to maintain IMF financing to the country casts
a shadow on regional markets. []
"Too bad news from Latvia could block the firming trend (in
Hungary's bond market)," one Budapest-based trader said. "Yields
may even fall after the rate decision, but they have come down a
lot, a correction would be natural."
Hungary, which this month reduced reliance on IMF funding by
boosting its bond sales, was told by the IMF on Thursday that it
should focus on reducing debt rather than just financing it.
The IMF's resident representative in Hungary also told
Reuters that a recent easing of financial strains along with a
projected decline in inflation provided scope for gradual and
cautious interest rate cuts in Hungary.[]
Dealers said Hungary's rate move will be key for the forint.
"I think the market will be calmer until Monday when we will
see the size of the central bank's rate cut," one dealer said.
"A slight correction might follow then, but the 265 level (to
the euro) can be in sight in the short term."
The Czech crown is also seen taking a breather after hitting
its strongest level so far this year.
"The likelihood of a correction on global markets as well as
on the Czech crown has risen," Komercni Banka said in a note.
If Friday's close is on the stronger side of 25.70, the next
resistance is at 25 per euro, dealers said.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.454 25.56 +0.42% +5.1%
Polish zloty <EURPLN=> 4.189 4.218 +0.69% -1.77%
Hungarian forint <EURHUF=> 267.24 269 +0.66% -1.38%
Croatian kuna <EURHRK=> 7.308 7.318 +0.14% +0.78%
Romanian leu <EURRON=> 4.209 4.224 +0.36% -4.62%
Serbian dinar <EURRSD=> 92.96 93.046 +0.09% -3.74%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -46 basis points to 105bps over bmk*
4-yr T-bond CZ4YT=RR -14 basis points to +151bps over bmk*
8-yr T-bond CZ8YT=RR +17 basis points to +296bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -8 basis points to +360bps over bmk*
5-yr T-bond PL5YT=RR -6 basis points to +289bps over bmk*
10-yr T-bond PL10YT=RR -5 basis points to +266bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -2 basis points to +704bps over bmk*
5-yr T-bond HU5YT=RR -9 basis points to +611bps over bmk*
10-yr T-bond HU10YT=RR -3 basis points to +508bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1635 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus; Writing by Marton Dunai and
Marius Zaharia; Editing by Victoria Main)
