* FX mixed, bond yields edge higher in thin trade
* Romanian govt seen winning no-confidence vote
* Low demand could hurt Hungary's Thursday bond auction
* Moody's Greece downgrade, lower ZEW index set background
(Recasts throughout)
By Marton Dunai
BUDAPEST, June 15 (Reuters) - Emerging European assets were mixed on Tuesday morning as a no-confidence vote against the Romanian government raised uncertainty, and the unfavourable backdrop from Europe's core markets kept most investors away.
Romania's leu <EURRON=> edged 0.2 percent lower against the euro as all eyes focused on the parliamentary vote over deep spending cuts due later in the day. [
]The government is expected to survive the vote, boosting its ability to pass key austerity measures and helping to secure the country's aid deal with the International Monetary Fund in a likely boost for Romanian asset prices.
A defeat, while less likely, would lead to a political crisis and a market slump, analysts say.
The finance ministry defied increasing market pressure and said it could afford to reject offers for Romania's debt if the price was not right. Romania accepted only about one-third of bids at an auction of six-month treasury bills on Monday. [
]"Tension should ease after today," UniCredit analyst Dmitry Gourov said in a note. "A (government win) ought to be supportive for the leu."
Trading was very thin elsewhere in the region, which one dealer in Budapest said increased chances of a sell-off.
"Looks like everyone is watching the (football) World Cup instead of the market," another Budapest dealer said."
The Hungarian forint <EURHUF=> and the Czech crown <EURCZK=> each gave up 0.2 percent while the Polish zloty <EURPLN=> gained 0.2 percent.
The zloty outperformed after the new central bank governor said he expected a stronger currency, supported by fundamentals, as there were no immediate inflation risks in the European Union's most resilient economy. [
]Polish inflation is expected to have eased to 2.3 percent last month, the slowest since September 2007, according to a Reuters poll. [
]The Czech crown <EURCZK=> shrugged off May producer prices, which signalled a continuing recovery. [
]Czech party leaders agreed on Monday to reach a coalition deal by early July and form a government by mid-July to kick off preparations for the 2011 budget. [
]
UNCERTAINTIES SEEN
Regional assets got a negative backdrop from core markets, where risk appetite was seen waning.
"Yesterday evening's decision by Moody's to downgrade Greece to 'junk' will probably cool European investor optimism," Bank BPH analysts wrote in their morning note to clients.
Several analysts in developed markets said the move had already been priced in.
Germany's ZEW sentiment index weakened in May, and the ZEW Institute said economic recovery in Germany, emerging Europe's most important trading partner, might weaken towards the end of the year. [
]Hungary's debt markets were preparing for a bond auction on Thursday, the first since local political comments comparing Hungary to Greece rocked international markets a week ago.
The debt management agency AKK sold all planned T-bills in an auction on Tuesday, but interest remained low, which spelled trouble, a dealer said.
"If demand is this weak, if foreigners buy this little, I don't know if (AKK) can sell the bonds on Thursday," he said. "There is no selling pressure, but there is absolutely no offer side right now. They might have to cut it back some." --------------------------MARKET SNAPSHOT-------------------- Currency Latest Previous Local Local
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today in 2010 Czech crown <EURCZK=> 25.621 25.576 -0.18% +2.72% Polish zloty <EURPLN=> 4.066 4.075 +0.22% +0.93% Hungarian forint <EURHUF=> 279.56 279.07 -0.18% -3.29% Croatian kuna <EURHRK=> 7.211 7.218 +0.1% +1.36% Romanian leu <EURRON=> 4.232 4.225 -0.17% +0.13% Serbian dinar <EURRSD=> 103.053 103.07 +0.02% -6.96% Yield Spreads Czech treasury bonds <0#CZBMK=> 2-yr T-bond CZ2YT=RR 0 basis points to +146bps over bmk* 7-yr T-bond CZ7YT=RR 0 basis points to +169bps over bmk* 10-yr T-bond CZ9YT=RR 0 basis points to +147bps over bmk* Polish treasury bonds <0#PLBMK=> 2-yr T-bond PL2YT=RR -2 basis points to +408bps over bmk* 5-yr T-bond PL5YT=RR -2 basis points to +372bps over bmk* 10-yr T-bond PL10YT=RR -5 basis points to +308bps over bmk* Hungarian treasury bonds <0#HUBMK=> 3-yr T-bond HU3YT=RR +4 basis points to +627bps over bmk* 5-yr T-bond HU5YT=RR +2 basis points to +579bps over bmk* 10-yr T-bond HU10YT=RR -1 basis points to +482bps over bmk* *Benchmark is German bond equivalent. All data taken from Reuters at 1135 CET. Currency percent change calculated from the daily domestic close at 1600 GMT.
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