* FX give up some gains as dollar firms
* Czech markets split on central bank cut
* Hungary, Romania debt sales due
(Adds details, fixed income)
By Jason Hovet
PRAGUE, Nov 5 (Reuters) - Central European currencies broadly
retreated on Thursday, but the Czech crown held near a 1-1/2
week high after investors reversed some bets that the central
bank would ease interest rates later in the day.
The Hungarian forint <EURHUF=> led losses in the region on
the back of a firmer dollar and poorer global risk appetite,
falling 0.5 percent despite some signs of improvement for
Hungary's hard-hit manufacturing sector. []
In Romania, the leu <EURRON=> fell back near the key 4.3 per
euro support level a day after the proposed cabinet of Prime
Minister designate Lucian Croitoru failed to gain parliament's
approval. []
The crown was flat, holding onto gains made in the previous
session, when investors closed short positions in anticipation
the central bank would leave rates unchanged on Thursday due to
improving economic signs and recent currency weakness.
The unit had fallen back as much as 4.5 percent in the past
month on expectations the central bank may still cut interest
rates from a record low of 1.25 percent. []
"The interest rate decision in the Czech Republic today will
be a close one," Commerzbank said in a note. <ECONCZ>
"Some CNB board members had advocated lowering the benchmark
rate further by 25 basis points, but there are also good reasons
to leave it unchanged. For CZK exchange rates, the critical
factor should be how the decision is communicated."
Dealers said rate markets have priced in a 50 percent chance
for a cut, while bonds were firmer in quiet trade.
The crown <EURCZK=> dipped to 26.018 per euro by 1002 GMT,
but was still 3 percent lower than at the last central bank
meeting in September.
BOND TEST
Currencies have been knocked back in the past month, with
rising government deficits, political uncertainty and the chance
of further cuts in interest rates in some countries weighing on
sentiment.
Markets got a jolt on Wednesday from news Poland wants to
cut the amount of money it transfers to private pension funds in
a move to put a lid on rising public debt. []
The Polish zloty <EURPLN=> fell 0.4 percent on Thursday.
But analysts expect the regional correction only to be a
blip, and a Reuters poll on Tuesday showed currencies would
return to firming by 2010 and post solid gains in the next 12
months, led by the zloty. []
Markets were also eyeing bond auctions later in the day in
Hungary and Romania, both recipients of international bailouts
in the past year.
Dealers said Hungary's auction may be dampened by a recent
rise in yields and currency volatility. Yields have been sliced
in half in the past half-year, recently supported by
expectations for further monetary easing.
This was deepened by minutes from last month's meeting, that
showed almost half of the board wanted a deeper cut than the 50
basis point reduction to 7 percent. []
"It's difficult to predict what will happen at the auction,"
a Budapest dealer said. "The last auction was bought by one big
bidder who was not sensitive to yield levels, buying at yields
10 basis points below the market."
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.018 26.008 -0.04% +2.82%
Polish zloty <EURPLN=> 4.268 4.251 -0.4% -3.58%
Hungarian forint <EURHUF=> 277.05 275.79 -0.45% -4.87%
Croatian kuna <EURHRK=> 7.267 7.278 +0.15% +1.35%
Romanian leu <EURRON=> 4.297 4.291 -0.14% -6.58%
Serbian dinar <EURRSD=> 93.98 94.44 +0.49% -4.79%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR -11 basis points to 92bps over bmk*
7-yr T-bond CZ7YT=RR +1 basis points to +99bps over bmk*
10-yr T-bond CZ10YT=RR -1 basis points to +89bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +1 basis points to +536bps over bmk*
5-yr T-bond HU5YT=RR +7 basis points to +478bps over bmk*
10-yr T-bond HU10YT=RR +2 basis points to +420bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1104 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
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(Reporting by Reuters bureaus; Writing by Jason Hovet; Editing
by Ruth Pitchford and Patrick Graham)
