* Global risk aversion drives FX lower despite improved PMI
* Czech early elections thrown into doubt
* Polish bonds stable after inflation reading
(Recasts with Czech crown, updates prices)
By Marton Dunai and Dagmara Leszkowicz
BUDAPEST/WARSAW, Sept 1 (Reuters) - Central European
currencies extended losses in late trade on Tuesday after a
slide in global stocks cut appetite for risk, while the Czech
crown was hit also by a court ruling that threw early elections
into doubt.
The Polish zloty, which trades in the region's most liquid
market, led losses and fell back to a two-week low, and dealers
said improving manufacturing outlooks were not enough to shake
creeping risk aversion in the region.
A Czech Constitutional Court ruling threatened to delay
early elections set for Oct. 9-10 for an indefinite time,
throwing the country into turmoil at a time it needs leadership
to rein in a ballooning deficit. []
"Currencies in the region all fell back significantly on the
day," said a London-based dealer, but adding the crown's fall
was led mostly by regional moves. "(The politics) is certainly
not helping the crown. It raises uncertainty."
By 1658 GMT, the crown <EURCZK=> fell 0.8 percent to 25.614
to the euro, and the zloty <EURPLN=> was down 1.9 percent from
Monday's local close at 4.167 per euro.
The Czech news came too late in the day to hit local bond
markets. But dealers and analysts said uncertainty over talks on
the 2010 budget, already seen running a gap above 7 percent of
GDP, could add pressure to local currency and debt markets.
[]
"The delay of early elections is definitely bad news for the
Czech Republic," said analyst Lubos Mokras of Ceska Sporitelna.
"Protracted uncertainty may adversely affect the crown's
exchange rate and also slow down a recovery in the economy."
Governments have struggled in central Europe to curb budget
gaps amid the economic downturn, although signs from July have
signalled the worst of the economic crisis has passed, although
the road back to growth will be slow.
PMI OVERSHADOWED
Hungary's forint was down 1.6 percent on the day at a 7-week
low after the local manufacturing index dipped, while the Polish
and Czech readings moved closer to the point showing a return to
growth. []
But global markets offered little support for emerging
market assets, with European shares mostly in the red with only
Prague's PX <> moving around its closing levels. A negative
U.S. open added to the flight from higher-yielding, riskier
assets.
"We must wait for the real, hard indicators, especially on
core markets, to know when we can break out of current ranges in
the Eastern European region," a dealer in Budapest said. "I
expect that to happen on the weak side."
Technical resistance levels have prevented currencies from
significant weakening, but the region needs more positive news
flow to remain on a strengthening path, another dealer said.
Elsewhere in the region, Romania's leu <EURRON=> was
relatively stable after a GDP breakdown that showed Romania's
economy showed signs of bottoming out, with industry recording
small quarterly gains. []
On bond markets, Polish papers were stable after the finance
ministry estimated August inflation in Poland at 3.7 percent,
near the July reading of 3.6 percent. Still nagging inflation
and better growth in Poland have ended expectations the central
bank will cut interest rates more, hitting the short end of the
Polish curve. []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.614 25.423 -0.75% +4.45%
Polish zloty <EURPLN=> 4.167 4.089 -1.87% -1.25%
Hungarian forint <EURHUF=> 276.36 271.82 -1.64% -4.64%
Croatian kuna <EURHRK=> 7.346 7.361 +0.2% +0.26%
Romanian leu <EURRON=> 4.227 4.22 -0.17% -5.03%
Serbian dinar <EURRSD=> 93.15 93.27 +0.13% -3.94%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +19 basis points to 145bps over bmk*
4-yr T-bond CZ4YT=RR +3 basis points to +170bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -4 basis points to +384bps over bmk*
5-yr T-bond PL5YT=RR -4 basis points to +273bps over bmk*
10-yr T-bond PL10YT=RR -5 basis points to +279bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -25 basis points to +639bps over bmk*
5-yr T-bond HU5YT=RR -62 basis points to +592bps over bmk*
10-yr T-bond HU10YT=RR -51 basis points to +501bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1859 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
(Reporting by Marton Dunai and Dagmara Leszkowicz, Writing
by Jason Hovet; editing by Stephen Nisbet)
