* Leu trimmed Tuesday losses after fall of government
* Other currencies up, unmoved by data
* Privatisation plans can help zloty, analysts say
(Adds fixed income, detail)
By Dagmara Leszkowicz
WARSAW, Oct 14 (Reuters) - Emerging Europe currencies were
stronger on Wednesday with Romania's leu lagging behind the
regional trend after the country's parliament voted to topple
the government on Tuesday.
The centrists will stay in power in Bucharest until
parliament approves a new government.
But forming an administration will be tough before a
presidential election at the end of November, which has
polarised political groups and split the previous coalition
earlier this month.
"If political instability persists, Romania could de-couple
from the rest of the region in terms of both growth and currency
developments," Nicolaie Alexandru-Chidesciuc of ING Bank in
Bucharest said in a research note.
"Another rating downgrade would become more likely as well."
European Central Bank Governing Council member Ewald Novotny
said on Tuesday that political instability did not help the EU's
new member states, but that the region had Europe's highest
mid-term growth potential. []
At 0855 GMT, the leu <EURRON=> was 0.1 percent up versus the
euro, but still trading near 7-month lows at 4.296.
Other currencies were stronger, with Poland's zloty
<EURPLN=> 0.4 percent higher and Hungary's forint <EURHUF=>
leading gains with an increase of 0.56 percent. Some dealers
said market players in London sold euros in exchange for
Hungary's currency.
"Liquidity is thin for the moment ... so I think the forint
will retreat later," a dealer said.
Hungary's bonds were mixed, while Polish papers were up on
Wednesday, tracking the zloty and dealers said the market is
eyeing the first road bonds tender, due at 1000 GMT.
In the Czech Republic, the crown <EURCZK=> was 0.4 percent
up versus the euro but dealers said the unit would probably test
the weak side of 26 to the euro this week, continuing a recent
weakening trend.
"We will try 26 this week for sure, it is just a question of
when," Roman Fol, dealer at Raiffeisenbank, said. "It's still
the same song: We are watching the region and the market is
playing the central bank (comments)."
Czech central bank governor Zdenek Tuma and his deputy have
said this month that a rate cut may yet be on the cards, and the
bank has discussed using non-rate tools to prevent more crown
appreciation.
The Czech statistics office said August retail sales fell
more than forecast by 3.5 percent year-on-year, while Hungary
said industrial output data fell 19.8 percent year-on-year in
August, but neither figures affected currencies.
PRIVATISATION HELPS
In Poland, the statistics office will release September
inflation data at 1200 GMT. Analysts expect producer prices to
have risen 3.5 percent year-on-year last month.
"Should the MPC be disappointed today (by the inflation
data) this is likely to provide support for the zloty as it
would most likely rule out further rate cuts once and for all,"
analysts at Commerzbank wrote in a note.
A Reuters survey showed last week Poland's interest rate
will stay on hold at 3.5 percent for the fourth month running in
October and some analysts predict monetary policy tightening
could begin as early as the first half of 2010. []
On Tuesday Poland's central bank data showed foreign direct
investment (FDI) inflows rose to 890 million euros in August
from a 43 million euros gap in July, but analysts said it did
not affect the currency.
"That would be definitely positive (for the zloty) but more
important is whether it's a one-off or rather the beginning of
the trend," said Bartosz Pawlowski, FX strategist at BNP Paribas
in London.
He said the market may expect increasing capital inflows as
the country's ambitious privatisation plan assumes collecting
some 37 billion zlotys by the end of 2010.
"The privatisation plan may increase these (capital)
inflows, even if the Treasury Ministry does not manage to meet
its target," he said.
German utility RWE <RWEG.DE> said earlier it may not make a
binding offer for Polish Enea <ENAE.WA> as it considers the
price too high. []
RWE is the sole bidder for a 67 percent Enea stake put up
for sale by the Polish government and had been expected to file
a final bid on Thursday.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.81 25.915 +0.41% +3.65%
Polish zloty <EURPLN=> 4.208 4.223 +0.36% -2.21%
Hungarian forint <EURHUF=> 267.65 269.15 +0.56% -1.53%
Croatian kuna <EURHRK=> 7.257 7.25 -0.1% +1.49%
Romanian leu <EURRON=> 4.288 4.294 +0.14% -6.38%
Serbian dinar <EURRSD=> 92.922 92.95 +0.03% -3.7%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR -8 basis points to 134bps over bmk*
7-yr T-bond CZ7YT=RR -4 basis points to +160bps over bmk*
10-yr T-bond CZ10YT=RR -16 basis points to +123bps over
bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -2 basis points to +374bps over bmk*
5-yr T-bond PL5YT=RR -3 basis points to +328bps over bmk*
10-yr T-bond PL10YT=RR -5 basis points to +295bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -4 basis points to +519bps over bmk*
5-yr T-bond HU5YT=RR -3 basis points to +477bps over bmk*
10-yr T-bond HU10YT=RR -4 basis points to +425bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 0955 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Dagmara Leszkowicz,
editing by Stephen Nisbet)
