* Forint hits 4-month high to euro ahead of weekend election
* Romania, Poland hold rates as expected
* Romania court delays decision on key IMF-mandated reform
(Adds Romania court, Polish rate decision, quotes)
By Sandor Peto and Marius Zaharia
BUDAPEST/BUCHAREST, Sept 29 (Reuters) - Hungary's forint
rose on Wednesday ahead of weekend elections that could herald
more spending cuts, while Romania's leu and the Polish zloty
were flat after interest rate decisions that the market had
anticipated.
The forint touched a 4-month high to the euro and Hungarian
bond yields fell 10 basis points in early trade, with 5-year
yields at a near five-month low of 6.55 percent as some
investors bet the government will pare back spending after the
municipal elections, which are expected to strengthen its
position.
Bonds gave back most of the gains later in the session,
mainly at the long end of the curve, but traders said sentiment
remained supportive.
Hungary's Fidesz cabinet spooked markets over the summer
with an anti-austerity stance and by comparing its debt problems
with Greece's and suspending talks with the International
Monetary Fund over a 20 billion euro bailout deal signed in
2008.
After the elections it is expected to publish details of its
2011 budget, key to investor confidence in Hungarian assets.
"The forint is leading and the elections are a factor," one
dealer in Budapest said.
Romania's IMF deal is also under close scrutiny. The
constitutional court in Bucharest delayed until next week a
ruling on related pension reforms. A rejection of the reforms,
seen as the more likely outcome, would likely hit markets.
[]
"I'm staying long (in the leu) as I'm waiting for the
decision," one dealer in Bucharest said. "If they validate the
bill it is market neutral so there is not too much risk to take,
but if they reject it, you'd better be long."
The region's most fragile government is also likely to face
a tough battle to stay in power, with a no-confidence vote
scheduled for late October.
Romania held interest rates at a record low of 6.25 percent
on Wednesday, as widely expected, with the central bank saying
the success of IMF-agreed fiscal policies was key to containing
inflation. []
The leu <EURRON=> was a touch down on the day, trading at
4.269 to the euro at 1341 GMT. The forint <EURHUF=> was bid 0.2
percent stronger at 276.24 while the zloty <EURPLN=> and the
Czech crown <EURCZK=> were flat.
POLAND ALSO HOLDS RATES
Poland's central bank also kept its rates on hold, at 3.5
percent, for the 15th month running on Wednesday. Higher rates
are expected by the end of the year due to price pressures,
though a series of weaker data and comments by the bank have
cooled such expectations.
"Many market participants expect the Polish central bank to
deliver its first rate hike soon," Danske Bank said in a morning
note. "We do not believe it will do so until Q1 next year at the
very earliest, given the continued benign inflation outlook."
Central Bank governor Marek Belka said the bank's monetary
policy assumptions did not envisage a change to inflation
targets.
Central European currencies are expected to stay well bid in
the near future on expectations for more quantitative easing by
the U.S. Federal Reserve, though debt worries in the euro zone's
periphery and domestic fiscal problems could cause volatility.
"The entire system, globally, is cash-rich. There will be
quantitative easing, the money is there and will continue to
seek its place," one Budapest-based fixed income trader said.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.555 24.564 +0.04% +7.18%
Polish zloty <EURPLN=> 3.972 3.97 -0.05% +3.32%
Hungarian forint <EURHUF=> 276.24 276.67 +0.16% -2.13%
Croatian kuna <EURHRK=> 7.295 7.292 -0.04% +0.19%
Romanian leu <EURRON=> 4.269 4.265 -0.09% -0.74%
Serbian dinar <EURRSD=> 105.9 105.62 -0.26% -9.46%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -2 basis points to 94bps over bmk*
7-yr T-bond CZ7YT=RR -5 basis points to +97bps over bmk*
10-yr T-bond CZ9YT=RR -3 basis points to +114bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -2 basis points to +397bps over bmk*
5-yr T-bond PL5YT=RR -6 basis points to +362bps over bmk*
10-yr T-bond PL10YT=RR -4 basis points to +323bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -9 basis points to +554bps over bmk*
5-yr T-bond HU5YT=RR -10 basis points to +513bps over bmk*
10-yr T-bond HU10YT=RR -1 basis points to +458bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1541 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
For related news and prices, click on the codes in brackets:
All emerging market news []
Spot FX rates Eastern Europe spot FX <EEFX=.
Middle East spot FX <MEFX=> Asia spot FX <ASIAFX=>
Latin America spot FX <LATAMFX=>
Other news and reports
World central bank news [] Economic Data Guide <ECONGUIDE>
Official rates [] Emerging Diary []
Top events [] Diaries [] Diaries Index []
(Reporting by Reuters bureaux, writing by Marton Dunai/Sandor
Peto/Marius Zaharia; editing by Tim Pearce, John Stonestreet)
