* Market holidays in Poland, Hungary; bets increase on QE2
* IMF approves Romania loan tranche, Hungary budget out
(Updates Romania/IMF review, adds bonds)
By Jason Hovet
PRAGUE, Nov 1 (Reuters) - The leu dipped on Monday after the
IMF said Romania was meeting its fiscal commitments but price
pressures remained, while other emerging European currencies
were mixed with all eyes on likely policy moves by the U.S.
Federal Reserve.
Hungary's forint rose 0.3 percent in holiday trading
following the weekend release of a budget for 2011 that aims to
cut the deficit to below 3 percent of GDP, but which did little
to reassure analysts the country is heading down a path of
fiscal sustainability. []
Trading in the region remained quiet due to market
holidays in Hungary and Poland as dealers said investors were
positioning for a likely renewal of asset buying from the U.S.
Federal Reserve with a new quantitative easing (QE) programme.
Prospects of this have weakened the dollar and encouraged
investors have used to buy up higher-yielding emerging market
assets.
The Czech crown, central Europe's top performer in 2010,
rose a touch, trading below the 24.600 level it broke though
last week following a 12th straight Purchasing Managers' Index
(PMI) reading showing expansion in the economy. []
The forint bid just off the 270 per euro level, while the
Polish zloty dipped 0.1 percent.
"People are happy to play the QE2 trade again, selling
dollar and investing in emerging (markets) after some guys took
profits last week," a Prague dealer said.
Analysts have said a smaller QE2 figure than generally
expected -- an amount of at least $500 billion of Fed asset
purchases has been cited in markets -- could lead to a
correction in high-yielding assets.
Meanwhile investors' appetite for risk was also boosted by a
strong Chinese PMI reading.
ROMANIA AID
International lenders agreed on Monday to release the next
tranche of loans due under Romania's 20 billion euro ($27.9
billion) bailout programme -- taking some pressure off a
government struggling to stay in power while selling local debt
only at the prices it wants to pay.
The International Monetary Fund's Romania mission chief
Jeffrey Franks said Romania was on track, though wage pressures
continued to pose a threat and the next loan tranche would be
tied to on adoption of the 2011 budget. []
The leu <EURRON=> dipped 0.3 percent to 4.28 per euro.
"The decision was priced in by markets," said Ionut Dumitru
of Raiffeisen Bank in Bucharest. "We would have seen an impact
if an agreement was not reached and things derailed."
The deal is crucial for maintaining Romania's credibility
among international investors, and Bucharest is expected to seek
a fresh agreement once the existing one expires in March.
In Hungary, reaction was muted after the centre-right Fidesz
government submitted the 2011 budget to parliament on Saturday
with a deficit target of 2.9 percent of gross domestic product
-- the lowest since Hungary joined the European Union in 2004.
The plan taps into new taxes on business sectors such as
banking and energy, while reducing the size of the government.
The government will also transfer no taxpayer payments into
private pension funds for the next 14 months.
A government pledge in September to make further budget cuts
next year has stabilised markets and helped the forint, but
longer-term questions remain.
"We maintain our view that government fiscal consolidation
plans are ultimately unsustainable and not likely to bring a
lasting reduction in the risk premium or long-term interest
rates," Goldman Sachs wrote in a Sunday note.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.581 24.588 +0.03% +7.07%
Polish zloty <EURPLN=> 3.967 3.962 -0.13% +3.45%
Hungarian forint <EURHUF=> 270.4 271.27 +0.32% -0.02%
Croatian kuna <EURHRK=> 7.346 7.345 -0.01% -0.5%
Romanian leu <EURRON=> 4.28 4.267 -0.3% -1%
Serbian dinar <EURRSD=> 107.3 107.06 -0.22% -10.64%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -8 basis points to 78bps over bmk*
7-yr T-bond CZ7YT=RR +1 basis points to +97bps over bmk*
10-yr T-bond CZ9YT=RR +1 basis points to +114bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1225 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
For related news and prices, click on the codes in brackets: All
emerging market news []
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(Reporting by Reuters bureaus, writing by Jason Hovet,
editing by Catherine Evans, John Stonestreet)
