* Currencies, emerging market sentiment dip
* Euro debt concerns, Egypt crisis weigh
* Zloty leads losses; rate outlook seen uncertain
* Hungarian markets uneasy, awaiting fiscal reform details
* Stocks recoup recent losses, Hungary seen vulnerable
(Recasts with new comments, prices)
By Marton Dunai and Sandor Peto
BUDAPEST, Feb 11 (Reuters) - Emerging European currencies
extended this week's losses on Friday amid indications that
optimism over anticipated Hungarian spending cuts and Polish
central bank interest rate hikes may have been overdone.
The region's equity markets took a breather after recent
falls but investors remained uneasy against a backdrop of
escalating tensions in Egypt and weakness in the region's
reference currency, the euro. []
By 1047 GMT, the zloty <EURPLN=> shed 0.4 percent against
the common currency, the forint <EURHUF=> and the Czech crown
<EURCZK=> both eased 0.3 percent and the leu <EURRON=> under 0.1
percent.
Hungarian government bonds continued to retreat as investors
await details of a fiscal adjustment plan. Foreigners have
boosted their Hungarian bond holdings this year but are still
underweight relative to emerging market peers, traders said.
Some details may emerge on Friday after a meeting of the
ruling Fidesz party, or in a speech Prime Minister Viktor Orban
is expected to deliver in parliament on Monday, though the
government is not expected to table the reforms until close to
the end of this month.
Hungary sold all the bonds it offered at auctions on
Thursday <HUAUFCTION02>, but traders said demand for 5- and
10-year bonds was weak relative to the amount of expiries and
interest payments this month.
"Everybody is waiting to see the details (of the reform
package)... we are waiting for the miracle," one Budapest-based
fixed income trader said. "(A press report) yesterday that the
focus is shifting towards revenue (rather than spending)
measures is not positive." []
Hungarian bonds have retreated in recent days and yields
rose by another 4-10 basis points on Friday. The full bond yield
curve rose above 7 percent mark and the papers have given up
near half of the gains posted in the first weeks of 2011.
"They (the government) had better come out with something
convincing," a foreign exchange dealer said. "If they
disappoint, the forint will continue its slide for sure."
INVESTORS MULL INTEREST RATE TRENDS
Polish bonds firmed slightly in the past two days while the
zloty weakened as comments by a Polish central banker cast doubt
on expectations of sizeable interest rate hikes.
"In the near term there are no factors that could strengthen
the zloty," a trader at a Warsaw bank said. "Interest rates
(could be supportive) but these (rate rises) are not certain."
The central bank is seen raising rates several times this
year but analysts differ over the likely timing of the hikes.
"The zloty is weaker also because of what is going on in
Egypt, and because of the recent rate hike in China, which
diminishes liquidity on the market (and) does not bode well for
emerging markets," the trader added.
Stock markets recovered somewhat from steep recent losses,
which all but erased 2011 gains and took a toll especially in
Budapest <>. The correction did not mean the slide would now
stop, Hungarian traders said.
"The pink veil (of optimism) seems to be lifting, and
comments from the past week and a half suggest our expectations
as to the efficacy of fiscal reforms are coming true," Equilor
Investments, which has been bearish on the likely reform plan,
said in a note to clients.
"There are still no signs of a marked will for spending
cuts."
Czech bond yields fell by up to 10 basis points in thin
trade, after central bank minutes revealed a split board, which
could play into decreasing bets on aggressive tightening as this
week's inflation data was lower than expected. []
"Given the fact that hawk (Robert) Holman will be replaced
by a new member, (Lubomir) Lizal, it could decrease the
probability of central bank hikes and thus we see ... minutes as
slightly dovish," Komercni Banka traders said in a note.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2011
Czech crown <EURCZK=> 24.247 24.182 -0.27% +3.11%
Polish zloty <EURPLN=> 3.933 3.917 -0.41% +0.64%
Hungarian forint <EURHUF=> 272.99 272.05 -0.34% +1.83%
Croatian kuna <EURHRK=> 7.407 7.408 +0.01% -0.36%
Romanian leu <EURRON=> 4.264 4.262 -0.05% -0.73%
Serbian dinar <EURRSD=> 103.22 103.2 -0.02% +2.62%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +4 basis points to 45bps over bmk*
7-yr T-bond CZ7YT=RR +4 basis points to +84bps over bmk*
10-yr T-bond CZ9YT=RR +3 basis points to +73bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +2 basis points to +359bps over bmk*
5-yr T-bond PL5YT=RR +3 basis points to +334bps over bmk*
10-yr T-bond PL10YT=RR +5 basis points to +302bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +14 basis points to +529bps over bmk*
5-yr T-bond HU5YT=RR +8 basis points to +489bps over bmk*
10-yr T-bond HU10YT=RR +8 basis points to +431bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1147 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
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(Reporting by Reuters bureaux, writing by Marton Dunai/Sandor
Peto; Editing by Catherine Evans, John Stonestreet)
