* Zloty cuts losses after stronger retail sales
* Stocks drift around 10-month highs
* Unchanged rates seen at Polish cbank meeting on Wednesday
(Recasts with Polish retail sales, adds bonds)
By Jason Hovet
PRAGUE, Aug 25 (Reuters) - The zloty cut losses on Tuesday
after stronger than expected Polish retail sales added to
chances the central bank would hold interest rates steady on
Wednesday.
Equity markets in Warsaw, Prague, Bucharest and Budapest,
already at 10-month highs, cut morning losses and moved to
positive territory by 0919 GMT, with the exception of Prague.
Most of the region's currencies drifted lower.
Poland posted a 5.7 percent year-on-year rise in July retail
sales, surpassing the previous month and market expectations
that looked for only a 0.7 percent gain.
The data came as markets were starting to look ahead to the
end of a Polish monetary policy meeting on Wednesday, and added
to expectations the central bank will pause in its easing cycle
as Poland's large domestic base props up the economy.
[]
The Polish zloty <EURPLN=> bid up 0.1 percent at 4.096 to
the euro, trimming a 0.4 percent loss seen ahead of the data,
while bonds weakened slightly.
"Retail sales continue to rise, so this is not something
that would suggest interest rate cuts to the MPC (central
bank)," said Jaroslaw Janecki, chief economist at Societe
Generale in Warsaw.
Poland has avoided the recession felt by its more
export-oriented central European neighbours, which have
contracted sharply this year due to lost foreign orders for the
region's cars and televisions.
Hungary, which has been unable to ease monetary policy due
to financial instability concerns, on Monday cut its main rate
by 50 basis points to address a severe economic contraction. It
was only the second rate cut since January and analysts expect
further easing. []
The Hungarian forint <EURHUF=> lost 0.2 percent on Tuesday
and bond market yields edged a touch lower.
SIDEWAYS
Improving euro zone data boded well for the region's march
back to growth and has been partly behind the region's stocks
rebound, as investors return to overweight positions.
Prague and Budapest exchanges are both up around 29 percent
since June 1.
"I don't think we are at the point of a big break to the
downside (in regional markets)," said Ulrich Leuchtmann, head of
foreign exchange research at Commerzbank in Frankfurt, adding
markets would likely move sideways in the coming days.
"(Today's moves) mainly reflect people have put on some
risky positions and are probably fine with the levels and don't
want to put on additional risk."
In Romania, the leu <EURRON=> edged down to 4.223 per euro.
The Czech crown <EURCZK=> dipped 0.3 percent but still bid
around its highest level this year at 25.413 to the euro, with
dealers eyeing levels on the dollar/crown cross <CZK=>, which
moved to its strongest level since December in the past week.
"If people moved more to sell the dollar, the euro/crown
could get to stronger levels yet," a local dealer said.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.413 25.339 -0.29% +5.27%
Polish zloty <EURPLN=> 4.096 4.099 +0.07% +0.46%
Hungarian forint <EURHUF=> 268.1 267.61 -0.18% -1.7%
Croatian kuna <EURHRK=> 7.318 7.323 +0.07% +0.64%
Romanian leu <EURRON=> 4.223 4.22 -0.07% -4.94%
Serbian dinar <EURRSD=> 93.03 92.98 -0.05% -3.82%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -10 basis points to 59bps over bmk*
4-yr T-bond CZ4YT=RR -2 basis points to +137bps over bmk*
8-yr T-bond CZ8YT=RR +1 basis points to +253bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +1 basis points to +362bps over bmk*
5-yr T-bond PL5YT=RR +1 basis points to +311bps over bmk*
10-yr T-bond PL10YT=RR +6 basis points to +280bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -12 basis points to +629bps over bmk*
5-yr T-bond HU5YT=RR -6 basis points to +564bps over bmk*
10-yr T-bond HU10YT=RR +3 basis points to +491bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1124 CET.
Currency percent change calculated from the daily domestic
close at 1500 GMT.
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(Reporting by Reuters bureaus; writing by Jason Hovet; Editing
by Jon Boyle)
