(Adds details, fixed income, byline)
By Jason Hovet
PRAGUE, Jan 27 (Reuters) - The zloty extended its climb from
four-year lows on Tuesday before an expected Polish interest
rate cut later in the day, leading a recovery in central
European currencies which have been hammered so far this year.
Currencies rose on Monday helped by a partial recovery for
global stocks and risk appetite, but they are still sharply down
from the start of the year after a month in which the economic
outlook for the region has darkened.
Markets expect central banks across the ex-communist region
to continue to cut interest rates in response and Poland is
expected to ease borrowing costs by 50 basis points to 4.5
percent later in the day []
Monetary easing lowers the premium investors get for holding
zloty assets, but dealers said the market would view the boost
to the economy of another reduction as a positive sign.
The zloty <EURPLN=> jumped 1.1 percent up from Monday levels
by 1000 GMT at 4.32 to the euro, after weakening beyond 4.40 for
the first time since September 2004 last week.
"I expect the zloty to strengthen slightly today and the MPC
(central bank) decision may cause more significant moves," said
Jan Koprowski, dealer at BNP Paribas.
"A (rate) cut is likely to be supportive for the economy,
thus the zloty should gain in the short-term."
Romania's leu <EURRON=> was flat, while the Hungarian forint
<EURHUF=> added 0.4 percent to 284.04 per euro -- after hitting
an all-time low above 291 on Friday.
The Czech crown <EURCZK=> rose 0.6 percent as stocks drew
strength from positive signals coming out of the banking sector
and a stronger euro. []
"It is a continuation of positive sentiment from yesterday,"
said Jon Harrison, currency strategist at Dresdner Kleinwort.
But analysts still expect currencies to return to weakening
as interest rates in the region come down along with economies
suffering from a slump in exports to the recession-hit euro
zone.
Hungary has already taken back two-thirds of an emergency
300 basis point hike from October as the economy falls into
recession.
Economists have warned the Czech economy could also contract
in 2009, and the central bank has cut interest rates by 150
basis points since August and is expected to cut another 50
basis points next week.
In Romania, seen as one of the region's more vulnerable
economies, the central bank is seen joining the loosening trend.
"I think it will be hard for currencies to continue to
outperform the euro because growth is slowing across the
region," Harrison said.
In bond markets, trade was quiet ahead of the Polish rate
decision.
"We marginally favour a deeper cut given the growing growth
concerns and the improving inflation outlook, which would be
positive for shorter maturities," KBC analysts wrote.
"However, a 50 bps cut with a clear message that more action
is on the way would not be a disappointment for the market."
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 27.525 27.695 +0.62% -2.8%
Polish zloty <EURPLN=> 4.32 4.37 +1.16% -4.75%
Hungarian forint <EURHUF=> 284.04 285.28 +0.44% -7.21%
Croatian kuna <EURHRK=> 7.395 7.4 +0.07% -0.41%
Romanian leu <EURRON=> 4.226 4.226 0% -5.01%
Serbian dinar <EURRSD=> 96.11 95.526 -0.61% -6.9%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -27 basis points to 80bps over bmk*
4-yr T-bond CZ4YT=RR -1 basis points to +81bps over bmk*
8-yr T-bond CZ8YT=RR +6 basis points to +106bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -2 basis points to +310bps over bmk*
5-yr T-bond PL5YT=RR -4 basis points to +253bps over bmk*
10-yr T-bond PL10YT=RR +2 basis points to +236bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -13 basis points to +763bps over bmk*
5-yr T-bond HU5YT=RR -12 basis points to +715bps over bmk*
10-yr T-bond HU10YT=RR -3 basis points to +549bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1101 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Jason Hovet; editing
by Patrick Graham)
