* Zloty firms further after last week's govt-Eureko deal
* Leu constrained by political uncertainty
(adds fixed income, detail, quotes)
By Marius Zaharia
BUCHAREST, Oct 6 (Reuters) - The Polish zloty outperformed
its central European peers on Tuesday, heading towards the key
4.15 level, extending gains after concerns eased that a large
dividend payment would flood the market with the currency.
In Romania, political uncertainty continued to weigh on the
leu, while market perception of a more dovish stance from the
Czech central bank held the crown back.
Hungary's forint edged up, supported by Friday's news that
Standard & Poor's raised Hungary's rating outlook, saying the
government will contain a deterioration in finances despite a
deep recession.
Regional assets were helped by an overnight rally in Asian
shares after U.S. services sector data increased risk appetite.
[]
The zloty, seen outperforming its peers in the longer run,
made the most of refief over details of an agreement on Friday
by Poland to pay Dutch firm Eureko $1.6 billion as part of a
deal to end an ownership battle over Polish insurer PZU.
[]
The deal included Eureko receiving 4.77 billion zlotys from
Poland and an additional 3.55 billion from its share of a
special PZU dividend worth 12.55 billion.
Concerns that Eureko would convert the payout into euros,
flooding the market with the Polish currency, had contributed to
driving the zloty to its lowest in two months.
At 0946 GMT, the zloty <EURPLN=> was 0.8 percent firmer from
the previous domestic close, while the forint <EURHUF=> was up
0.1 percent, unshaken by poor industry data. []
"We are seeing a long squeeze which is fuelled by positive
developments with ... Eureko story," one Warsaw-based dealer
said. "Market is badly caught long EURPLN which is wrong and
that's why (the zloty) is gaining more than others."
He said traders were trying to breach the key 4.15 level.
In debt markets, Hungarian bonds were little changed, while
Polish bond yields fell 4-7 basis points in line with the zloty.
SHAKY ROMANIA
In Romania, the leu <EURRON=> edged up 0.1 percent, shyly
following peers, with the markets waiting for more political
developments after the ruling coalition split last week, leaving
behind a fragile minority government.
The opposition Liberal Party said it plans to file a
no-confidence vote against the minority government, and the
leftist Social Democrats, which left Prime Minister Emil Boc's
cabinet last week, said they would back it.
But with Romania's long-standing tradition of fleeting
political alliances it was unclear whether the government would
fall, which is why markets were on stand-by.
"The leu missed the region's overnight rally, because while
the market hasn't built any expectation for a no-confidence vote
yet, it is clear the leu will weaken if the government
collapses," one Bucharest-based dealer said.
Markets fear Romania will fail to pass reforms prescribed by
the International Monetary Fund under an aid deal earlier this
year, with a large-scale general strike on Monday underscoring
mounting social pressures ahead of presidential polls.
"The weakness of the yet-again-minority-government is being
highlighted by yesterday's general strike ... with threat of
more to come," Cheuvreux said in a note. "All a bit of a mess
that is likely to become more of a mess."
The Czech crown <EURCZK=> lagged the region to bid flat
around 25.515 per euro after central bank chief Zdenek Tuma said
on Monday policymakers would consider intervening to weaken the
crown or cut interest rates if the currency keeps firming,
although the bank is no fan of intervention. []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.515 25.501 -0.05% +4.85%
Polish zloty <EURPLN=> 4.18 4.212 +0.77% -1.56%
Hungarian forint <EURHUF=> 266.81 267.04 +0.09% -1.22%
Croatian kuna <EURHRK=> 7.259 7.257 -0.03% +1.46%
Romanian leu <EURRON=> 4.259 4.264 +0.12% -5.74%
Serbian dinar <EURRSD=> 93.2 93.06 -0.15% -3.99%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +11 basis points to 162bps over bmk*
7-yr T-bond CZ7YT=RR -2 basis points to +176bps over bmk*
10-yr T-bond CZ10YT=RR -2 basis points to +168bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -8 basis points to +386bps over bmk*
5-yr T-bond PL5YT=RR -5 basis points to +337bps over bmk*
10-yr T-bond PL10YT=RR -6 basis points to +304bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -1 basis points to +542bps over bmk*
5-yr T-bond HU5YT=RR +5 basis points to +532bps over bmk*
10-yr T-bond HU10YT=RR -2 basis points to +475bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1246 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;
Editing by Sue Thomas)
