(Changes dateline, adds details, byline)
By Jason Hovet
PRAGUE, Oct 9 (Reuters) - Romania's leu jumped on Thursday
to lead emerging European currencies higher after falls a day
earlier, but trade was volatile as the credit crisis weighed and
dealers said currencies are likely to weaken.
The leu <EURRON=> surged 1.7 percent to 3.814 after recent
heavy losses, and Poland's zloty <EURPLN=> jumped 0.9 percent
against the euro to 3.442 by 1131 GMT.
Dealers said it was helped by a tentative return of global
risk appetite -- which tends to support emerging market assets
-- although Hungary was forced to cut back on a bond auction on
Thursday.
Central European currencies have swung widely in recent
weeks as questions over the health of the global banking sector
drag on the wider economy, impacting the region's export-driven
economies.
The Czech crown <EURCZK=> rebounded from early losses to
gain a touch to 24.628 against the euro, while Hungary's forint
<EURHUF=> rose 0.5 percent to 251.21.
"We are seeing some stabilisation," said Lars Christensen,
at Danske Bank. "The risk is still twisted toward weaker
currencies."
The Czech central bank held off on discussing interest rates
at a meeting on Thursday, while Polish central bankers have
signalled there is less chance of more monetary tightening after
the world's major central banks slashed interest rates on
Wednesday.
The Czechs were the first to turn policy in the region in
August, cutting interest rates by 25 basis points to 3.50
percent. Central bankers have said the economy will now likely
slow more than expected.
On Thursday, industrial output data from August fell more
than expected on declining orders from abroad [],
backing the case of another cut in rates seen by analysts.
Interest rate swaps were stable after dropping around 20
basis points on Wednesday.
Tightening cycles in other central European countries are
now seen at an end for the most part, but the timing of any
lower moves is still uncertain.
LIQUID PAINS
Heightened risk aversion globally has limited flows into
emerging assets, while frozen credit markets have left investors
hoarding cash.
Central European markets have remained mostly immune to
global credit woes, but risks are starting to appear, and
investors have raised red flags mainly in Hungary and Romania,
which are more exposed to foreign credit and run higher current
account deficits.
"The recent freeze in FX swap and forward markets increases
Hungarian banks' vulnerability and suggests possible further
depreciation pressures on the forint," Citigroup analysts wrote.
In fixed income, Hungary cut its 10-year government bond
auction offer on Thursday by 10 billion forints ($54.36 million)
to 30 billion forints as the global financial crisis cuts
liquidity [].
On Wednesday, neighbouring Romania sold only half of the
planned amount of six-month Treasury bills at an auction.
Lower liquidity pushed Czech market makers to widen spreads
on Thursday, sending lower-yielding Czech bonds down <0#CZBMK=>.
Liquidity in the market has dropped over several months, but
market players said the change will have little impact.
"It's definitely a change for the worse," a local fund
manager said. "There will be some trading via brokers, but with
a 3 percent spread it's ridiculous."
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2008
Czech crown <EURCZK=> 24.628 24.641 +0.05% +7.05%
Polish zloty <EURPLN=> 3.442 3.474 +0.92% +4.4%
Hungarian forint <EURHUF=> 251.210 252.420 +0.48% +0.65%
Croatian kuna <EURHRK=> 7.133 7.130 -0.04% +2.64%
Romanian leu <EURRON=> 3.814 3.879 +1.68% -6.53%
Serbian dinar <EURRSD=> 80.070 80.518 +0.56% -1.66%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +7 basis points to 51bps over bmk*
5-yr T-bond CZ5YT=RR -15 basis points to +42bps over bmk*
10-yr T-bond CZ9YT=RR +59 basis points to +55bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -5 basis points to +291bps over bmk*
5-yr T-bond PL5YT=RR -9 basis points to +239bps over bmk*
10-yr T-bond PL10YT=RR -10 basis points to +196bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -11 basis points to +695bps over bmk*
5-yr T-bond HU5YT=RR +1 basis points to +665bps over bmk*
10-yr T-bond HU10YT=RR -16 basis points to +502bps over bmk*
*Benchmark is German bond equivalent.
All currency data taken from Reuters at 1331 CET.
All bond data taken from Reuters at 1005 CET.
Currency percent change calculated from the daily domestic
close at 1500 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 Dagmara
Leszkowicz; editing by Patrick Graham and Victoria Main)
