* Polish zloty reverses gains on balance of payment worries
* Investors eye Poland cbank rate decision next week
* Romanian leu weakens on cbank policy
(Recasts with Czech budget, updates prices)
By Luiza Ilie and Marton Dunai
BUCHAREST/BUDAPEST, April 1 (Reuters) - The Polish zloty
dipped on Friday on uncertainty over the country's balance of
payments, while the Czech crown rose as Prague appeared on track
to meet its year-end deficit target.
In Romania, the leu <EURRON=> extended losses. It fell half
a percent from the previous session after the central bank left
interest rates unchanged at 6.25 percent on Thursday and in
subsequent remarks sounded less hawkish than markets had been
expecting. []
"The (zloty's) weakening was initiated by fears of an upward
revision of the deficit on the current account," a Warsaw-based
trader said. A top Polish central bank adviser said on Thursday
that the bank may need to revise its balance of payments by
billions of euros. []
Nervousness about the current account is offsetting
expectations the Polish central bank will raise interest rates
next week.
In a Reuters poll this week, 23 out of 29 analysts expected
the central bank to increase its main lending rate by a quarter
point to 4 percent when it meets on Tuesday. []
"The pace of policy tightening will determine near-term
gains in the PLN," Deutsche Bank wrote in a research report.
"The risk is primarily tied to any revisions to the Polish
external balances, which potentially could double the C/A
deficit to around 7 percent of GDP."
At 1322 GMT, the zloty <EURPLN=> was 0.1 percent lower,
while the Hungarian forint <EURHUF=> was flat and the Czech
crown <EURCZK=> added a third of a percent.
The crown rose as the Czech budget appeared to be on track
to meet the government's year-end deficit goal as spending cuts
led to a big drop in the first-quarter shortfall from last year,
data showed. []
Bond yields rose in Poland on expectations of an April rate
hike.
The Czech 10-year yield spread on the German bund tightened,
however, as Czech inflation is well below euro zone inflation.
Stocks rose on the day in most of the region, led by a 1.4
percent rise in Budapest <> and a 0.6 percent rise in Warsaw
<> by 1312 GMT. Prague's key <> index was up 0.1 percent.
March PMI data dipped slightly in Hungary and the Czech
Republic, but the levels were still high and indicated
manufacturing activity was still strong. []
FORINT FAVOURED OVER ZLOTY
In the first quarter of 2011, the Polish zloty was the only
currency in the region to slide against the euro, shedding
nearly 2 percent. The forint, a laggard in 2010, topped its
peers with a 4.5 percent rise as fiscal reforms were launched in
Hungary.
The forint was likely to continue to be supported by
improving economic fundamentals, analysts said.
"On balance, we tend to prefer the forint versus the zloty
at this point, also on the mere fact that fourth quarter current
account data in Hungary came in at (double) the expectations
yesterday," Unicredit said in a note.
Hungary posted a 366 million euro current account surplus in
the fourth quarter and a 2 billion euro surplus, its highest
ever, for the whole of 2010. []
The forint's gains, however, could prompt a policy response,
dealers said.
"We really don't think the forint has much more room to gain
next week," a dealer said in Budapest. "For it to be top gainer
is really not realistic, plus big gains will hurt exporters and
someone will start paying attention to that soon."
The Czech crown, the best performer in the region in 2010,
gained 2 percent in the first quarter.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2011
Czech crown <EURCZK=> 24.434 24.513 +0.32% +2.32%
Polish zloty <EURPLN=> 4.027 4.024 -0.07% -1.71%
Hungarian forint <EURHUF=> 265.61 265.7 +0.03% +4.66%
Croatian kuna <EURHRK=> 7.373 7.373 0% +0.09%
Romanian leu <EURRON=> 4.14 4.121 -0.46% +2.25%
Serbian dinar <EURRSD=> 102.7 102.97 +0.26% +3.14%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +1 basis points to -33bps over bmk*
7-yr T-bond CZ7YT=RR +1 basis points to +61bps over bmk*
10-yr T-bond CZ9YT=RR -4 basis points to +49bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -4 basis points to +319bps over bmk*
5-yr T-bond PL5YT=RR -3 basis points to +307bps over bmk*
10-yr T-bond PL10YT=RR -4 basis points to +285bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -2 basis points to +456bps over bmk*
5-yr T-bond HU5YT=RR +2 basis points to +425bps over bmk*
10-yr T-bond HU10YT=RR -2 basis points to +377bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1522 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus; Writing by Luiza Ilie; editing
by Susan Fenton)
