* Govt backs off Greece comments
* Stocks stay under pressure but off lows
* Forint, bonds rebound, markets still wary of spillover
* Other FX following forint, crown up after Fitch outlook
(Updates throughout)
By Jason Hovet
PRAGUE, June 7 (Reuters) - The forint bounced off a one-year
low and Hungarian bond prices rose on Monday after the
government rushed to calm market fears of a Greek-style crisis
which had sent ripples through global assets late last week.
Hungary's leading bank OTP <OTPB.BU> recovered a more than
10 percent early plunge to trade flat on the day, but stocks
remained under pressure amid reports the government
planned a new bank tax to raise revenues. []
The forint <EURHUF=> jumped 1.2 percent from Friday's local
close to bid 284.5 per euro by 1413 GMT.
Budapest vowed on Monday to keep its budget deficit as close
as possible to a target of 3.8 percent of GDP agreed with
lenders, including the International Monetary Fund and EU, by
cutting spending while at the same time lowering taxes.
The pledges were enough to give respite to markets pounded
last week when officials from the ruling centre-right Fidesz
party said the budget outlook was worse than thought and
suggested the country was close to a Greek-style meltdown.
[]
Markets remained on edge, however. Analysts said that while
Hungary's fiscal and debt situation was far from Greece's, the
country faces problems including a large amount of foreign
currency loans and a tough task in convincing markets it can
manage its debt.
"As long as the IMF and the EU are on board, there are no
funding pressures. As long as they do not do anything foolish
like cut taxes, they are fine," said Edwin Gutierrez, emerging
debt fund manager at Aberdeen Asset Management in London.
Economy Minister Gyorgy Matolcsy however reiterated on
Monday that the government planned to cut taxes.
Hungarian bond yields dropped 20-30 basis points from
morning levels, with the yield on the three-year bond off a
five-month high and long-end yields down from nine-month peaks.
Stocks <> were down less than 1 percent, paring an
earlier 5 percent drop to a near four-month low.
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For the latest stories out of Hungary, click []
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WATCHING THE BANKS
Moody's said on Monday that last week's comments by
Hungarian officials about the country's fiscal situation were
negative for Hungarian credit as they brought renewed attention
to the country's high debt.
It added that the government's apparent willingness to
explore unorthadox ways of funding the budget gap were cause for
concern. []
Online news portal Index reported that one fundraising
option being considered is the introduction of a special tax on
banks. That hit Budapest shares. []
Erste Group Bank <ERST.VI>, one of the largest lenders in
central Europe, dropped 1.7 percent. Prague stocks <> lost
1.8 percent and Bucharest's share market <> was down 1.3
percent.
But currencies rebounded with the forint.
The Polish zloty <EURPLN=> gained 0.8 percent, tracking the
forint higher. The Romanian leu <EURRON=> was down 0.4 percent
while the Czech crown <EURCZK=> fell on profit-taking, erasing
early gains triggered after Fitch raised its outlook on its
Czech rating on Friday. []
Concerns about Hungary's fiscal situation have raised
contagion fears that analysts say will not likely be realised.
Those concerns have also kept up pressure on central
Europe's reference currency the euro <EUR=> which hit its lowest
level in more than four years on Monday. Oil prices also fell
earlier in the day and worries about Hungary sent the yield on
Germany's 10-year Bund, seen as a safe haven, to a record low.
Analysts were split on whether the forint could bounce back
any time soon. []
Hungary was forced to seek a $25 billion international aid
package at the start of the financial crisis in October 2008.
Commerzbank said on Monday it would be difficult to get funding
without aid after CDS prices jumped above 400 bps.
"The risk of a renewed debt crisis has risen and as a result
a recovery of the forint is unlikely," its analysts said.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.964 25.96 -0.02% +1.36%
Polish zloty <EURPLN=> 4.144 4.176 +0.77% -0.97%
Hungarian forint <EURHUF=> 284.5 287.86 +1.18% -4.97%
Croatian kuna <EURHRK=> 7.258 7.259 +0.01% +0.71%
Romanian leu <EURRON=> 4.231 4.213 -0.43% +0.15%
Serbian dinar <EURRSD=> 103.32 102.94 -0.37% -7.2%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -2 basis points to 160bps over bmk*
7-yr T-bond CZ7YT=RR +1 basis points to +170bps over bmk*
10-yr T-bond CZ9YT=RR 0 basis points to +172bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -13 basis points to +634bps over bmk*
5-yr T-bond HU5YT=RR -23 basis points to +608bps over bmk*
10-yr T-bond HU10YT=RR -19 basis points to +534bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1614 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Additional reporting by Carolyn Cohn in London)
(Reporting by Reuters bureaus, writing by Jason Hovet; Editing
by Toby Chopra and Susan Fenton)
