*Forint, bonds extend gains, digest confusing PM comments
*Romania maintains yield cap at auction, leu firms
*Crown, zloty change little; equities surge
(Updates with fresh prices, comments)
By Marius Zaharia and Sandor Peto
BUCHAREST/BUDAPEST, Sept 13 (Reuters) - The forint firmed
and Hungarian government bond yields fell to 3-week lows as
optimism over the country's deficit cut plans prevailed, despite
confusing new comments from Prime Minister Viktor Orban.
The global mood remains supportive to risk appetite and the
European Union's (EU) emerging markets, but the firming of
European and U.S. stocks is unlikely to signal the end of the
past few weeks' high volatility, dealers said.
Hungarian government bond yields fell by 3-14 basis points,
with 3-year papers trading at 3-week lows around 6.93 percent at
1400 GMT, down 14 basis points from Friday.
The forint <EURHUF=> led currency gains in Central Europe,
still lifted by an announcement by Economy Minister Gyorgy
Matolcsy last week that Hungary wanted to cut its budget deficit
next year to below the EU's ceiling, 3 percent of GDP.
The Hungarian unit was bid at 283.30 against the euro at
1415 GMT, firmer by 0.4 percent from Friday.
The market was digesting the new comments of Prime Minister
Orban who confirmed to Parliament that the 2011 deficit target
cannot exceed 3 percent but also said that Hungary would fight
in Brussels for a budget accounting change. []
"In my interpretation that overwrites Matolcsy's comments
and the market does not really grasp that...I don't know," one
dealer said. "Perhaps the morning comments from (Mihaly) Varga
helped the forint outperform."
Orban's state secretary Mihaly Varga said Hungary could meet
by 2014-2015 the criteria for joining the euro zone.
[]
ROMANIA CONTINUES FIGHT
Following Matolcsy's comments Hungary sold last Thursday
twice the planned amount of the government bonds, although
auction yields were higher from the previous primary sale in
August.
Romania -- which along with Hungary has a more vulnerable
economy than regional peers -- continued on Monday to fight
against investor demand for higher yields.
It sold only a third of a planned 1 billion lei in one-year
Treasury bills, but analysts said it might eventually have to
give up its self-imposed 7 percent yield cap.
"The timing of that remains as unclear as it was before.
Probably (the finance ministry) needs a bigger shock than a
failed tender for this," said Vlad Muscalu of ING Bank.
Equity markets rose in the region, led by Budapest's <>
index which closed higher by 1.8 percent at 23,415 points.
Traders said the global risk appetite remained favourable,
but fears that global recession may return and that European
governments withdraw fiscal stimulus too rapidly remained in the
air.
"I expect further volatility (in the region) down the road,"
one Budapest-based currency dealer said. "Let's wait for (local
municipality elections on) October 3, and the budget plans to be
put down afterwards."
Elsewhere, the Czech crown <EURCZK=> and the Romanian leu
<EURRON=> both firmed 0.1 percent versus the euro, while the
Polish zloty <EURPLN=> shed 0.1 percent.
Czech dealers said the potential negative impact of worse
than expected Czech July current account data []
was offset by a bout of global risk appetite.
Viktor Mikulecky, an FX dealer at Ceska Sporitelna said the
crown may break through the 24.65 resistance level against the
euro and firm to between 24.25-24.30 in the next weeks,
supported by strong Czech economic fundamentals.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.653 24.682 +0.12% +6.75%
Polish zloty <EURPLN=> 3.938 3.935 -0.08% +4.22%
Hungarian forint <EURHUF=> 283.3 284.4 +0.39% -4.57%
Croatian kuna <EURHRK=> 7.283 7.283 0% +0.36%
Romanian leu <EURRON=> 4.259 4.265 +0.14% -0.51%
Serbian dinar <EURRSD=> 105.05 104.81 -0.23% -8.73%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +4 basis points to 80bps over bmk*
7-yr T-bond CZ7YT=RR +22 basis points to +95bps over bmk*
10-yr T-bond CZ9YT=RR +6 basis points to +81bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -17 basis points to +586bps over bmk*
5-yr T-bond HU5YT=RR -13 basis points to +550bps over bmk*
10-yr T-bond HU10YT=RR -7 basis points to +459bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1615 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus; Writing by Marius
Zaharia/Sandor Peto; Editing by Ron Askew)
