* Forint leads FX gains but remains most vulnerable in CEE
* Stocks gain; Bucharest and Prague hit seven-month peaks
* Polish bonds dip further on rate hike bets, pension move
(Adds fixed income, quotes)
By Marius Zaharia
BUCHAREST, Jan 4 (Reuters) - The Hungarian forint rose
against the euro on Tuesday, helped by a weaker Swiss franc and
an extended end-of-year rally in central European equities which
saw shares in Bucharest and Prague hit fresh seven-month highs.
The Swiss franc, broadly weaker against the euro and the
dollar as rising risk appetite dampened its safe haven appeal,
hit a two-week low against the forint <CHFHUF=>. The Swiss
currency is closely watched by investors in Hungarian assets
because Hungarian households hold a large amount of Swiss franc
loans.
At 1055 GMT, the forint <EURHUF=> was 0.5 percent stronger
on the day versus the euro, at 276.45.
"The euro's gains are especially spectacular against the
Swissie, which benefits the forint," one Budapest trader said.
Stock markets extended an end-of-year rally on more bets that
regional economic growth will pick up. Romanian shares <>
were 0.5 percent higher and Prague's benchmark index <> was
up 1 percent, both hitting levels not seen since May last year.
Budapest stocks <> rose 0.6 percent to their highest since
Dec. 9.
Upbeat Czech and Polish manufacturing data on Monday added
to growing optimism about the outlook for the region, which
lagged other emerging markets last year due to its close links
to the debt-ridden euro zone and due to the impact of government
spending cuts.
Despite a good start, the forint could see more volatility
later this year if the government does not deliver the spending
cuts it has promised to announce in February.
Budapest has stunned investors with its move last year to
break ties with the International Monetary Fund as well as its
decisions to seize private pension assets and introduce
temporary taxes on business to help pay down debt.
Investors have much more confidence in the Czech Republic's
finances, which showed clear improvement on Monday with the 2010
central state budget gap data beating the finance ministry's
target, thanks to lower debt costs and a freeze on spending.
[]
"We think it is useful to reiterate our call for a higher
CZKHUF in 2011," BNP Paribas said in a note.
"We have serious doubts that the Hungarian government will
come up with anything meaningful in February, which may well
spark another round of bearishness later on in Q1."
The Czech crown <EURCZK=> was up 0.5 percent as well,
trading at 24.889 per euro, while the Romanian leu <EURRON=> and
the Polish zloty <EURPLN=> were both up 0.2 percent.
"If we get through (around EURCZK 24.800) we could easily
get to 24.400 again," a dealer in Prague said.
POLISH BONDS WEAKEN
Polish bonds resumed losses, with yields up 1-3 basis points
on rising rate hike expectations and a possible negative impact
from changes in the pension system announced last week.
The finance ministry said on Monday inflation probably
jumped last month, prompting the most dovish rate-setter to say
that an interest rate rise may be necessary. []
Last week, the government said it would shift some employee
pension contributions away from the private sector, sparking
fears demand for state debt will fall. []
However, unlike in Hungary, which nationalised its pension
system late last year, the impact is seen as limited due to
foreign investors' very high participation in Poland's debt
markets.
Romania's finance ministry tenders 1 billion lei in one-year
T-bills later on Tuesday and the auction is expected to go well.
"Our preferred scenario is a full allocation at an average
yield below 7 percent, probably somewhere closer to the
secondary market 6.90 percent mid-level than the 6.96 percent
average yield of the latest auction," ING analysts said.
Buyers have been keener at recent Romanian tenders,
reflecting improved liquidity and renewed market confidence
after the government pushed a deficit-cutting budget through
parliament and survived two no-confidence votes in December.
Hungary sold the planned amount of three-month bills on
Tuesday at slightly lower yields [].
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2011
Czech crown <EURCZK=> 24.889 25.017 +0.51% +0.45%
Polish zloty <EURPLN=> 3.943 3.949 +0.15% +0.38%
Hungarian forint <EURHUF=> 276.45 277.8 +0.49% +0.55%
Croatian kuna <EURHRK=> 7.382 7.383 +0.01% -0.03%
Romanian leu <EURRON=> 4.266 4.273 +0.16% -0.77%
Serbian dinar <EURRSD=> 106.41 106.1 -0.29% -0.45%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -16 basis points to 90bps over bmk*
7-yr T-bond CZ7YT=RR -1 basis points to +89bps over bmk*
10-yr T-bond CZ9YT=RR 0 basis points to +96bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -2 basis points to +401bps over bmk*
5-yr T-bond PL5YT=RR +2 basis points to +375bps over bmk*
10-yr T-bond PL10YT=RR -1 basis points to +318bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1155 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
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(Reporting by Reuters bureaus, Writing by Marius Zaharia;
Editing by Hugh Lawson and Susan Fenton)
