* Global risk aversion drives FX lower despite improved PMI
* Forint lags as Hungary PMI dips, Polish, Czech improves
* Polish bonds gain on auction plan, mixed elsewhere
(Adds PMI, Polish CPI fcast, stocks, updates market)
By Marton Dunai
BUDAPEST, Sept 1 (Reuters) - Hungary's forint led losses
among Eastern European currencies on Tuesday as the local
manufacturing index worsened while the Polish and Czech reading
improved in August amid continuing global risk aversion.
The forint <EURHUF=> was 0.8 percent lower at 1028 GMT and
lost more than one percent from Tuesday's open as Hungary's
Purchasing Manager Index (PMI) slipped to 45.8 from a July
reading of 49.2.
The Polish zloty <EURPLN=> escaped with a milder loss,
shedding a quarter of a percent, buoyed by the local PMI, which
hit a 15-month high of 48.2. []
"This is a truly positive figure," Monika Kurtek, senior
economist at Bank BPH, said. "Industrial production in Poland
should start recovering and turning positive."
The Czech crown <EURCZK=> slipped 0.6 percent despite
improved PMI figures, which neared the 50-point threshold,
indicating a pickup in manufacturing there as well.
On global markets, the environment was not supportive for
emerging market assets. Stock falls in U.S. and a stronger yen
point to weaker risk appetite, CIB Bank wrote in a morning note.
Stocks were lower in Eastern Europe as well, Prague being
the only exception to record modest gains.
"We must wait for the real, hard indicators, especially on
core markets, to know when we can break out of current ranges in
the Eastern European region," a dealer in Budapest added. "I
expect that to happen on the weak side."
Technical resistance levels have prevented currencies from
significant weakening, but the region needs more positive news
flow to remain on a strengthening path, another dealer said.
The Polish finance ministry, in a widely watched report,
estimated August inflation in Poland at 3.7 percent, near the
July reading of 3.6 percent. []
A stubbornly high price index could put an end to interest
rate cut expectations there, Bank BPH wrote in a morning note.
In Prague and in Budapest, markets have cautiously started
watching 2010 budget negotiations as well.
"The crown does not react much to politics, but public
finance may be a big risk for the crown," said Miroslav Frayer,
FX analyst with Komercni Banka.
BONDS EYE ISSUANCE PLANS
The Czech finance ministry announced it would sell 12
billion crowns worth of state bonds in October, roughly the same
as in September but below market expectations. []
Bonds were little changed after the announcement, though the
lower issuance has supported markets in the past two months. The
Czech 10-year bond <CZ10YT=RR>, due for a Wednesday auction, has
fallen to 120 basis points from 180 basis points seen July 1.
"That's the best this year so (lower issuance) is having a
big impact," a dealer in Prague said.
Monday's news of Poland's potential cutdown on issuances for
the rest of the year continued to affect markets. []
Polish bonds were a tad stronger, benefiting from the
positive supply side details, and also keeping an eye on the
Finance Ministry's inflation forecasts, expected in the
afternoon. Trading there remained illiquid.
Hungarian bonds were mixed. Dealers said investors were
cautious after the Polish news, as well as sharp yields falls in
recent months and an upwards correction in the past days.
"Bids (yields) moved slightly higher," one Budapest-based
trader said. "It's difficult to make forecasts, the market is
cautious... Yesterday, when London was closed, trading interest
was near zero, today therefore it might be strong."
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.593 25.435 -0.62% +4.53%
Polish zloty <EURPLN=> 4.104 4.094 -0.24% +0.27%
Hungarian forint <EURHUF=> 274.25 272.156 -0.76% -3.9%
Croatian kuna <EURHRK=> 7.34 7.36 +0.27% +0.34%
Romanian leu <EURRON=> 4.215 4.224 +0.21% -4.76%
Serbian dinar <EURRSD=> 92.902 93.28 +0.41% -3.68%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +27 basis points to 146bps over bmk*
4-yr T-bond CZ4YT=RR +3 basis points to +166bps over bmk*
#VALUE!
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -1 basis points to +387bps over bmk*
5-yr T-bond PL5YT=RR 0 basis points to +327bps over bmk*
10-yr T-bond PL10YT=RR -1 basis points to +284bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -21 basis points to +642bps over bmk*
5-yr T-bond HU5YT=RR -58 basis points to +596bps over bmk*
10-yr T-bond HU10YT=RR -47 basis points to +502bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1228 CET.
Currency percent change calculated from the daily domestic
close at 1500 GMT.
(Reporting by Marton Dunai; Editing by Ruth Pitchford and
Victoria Main)
