* Forint at 5-wk high after deficit pledge reiterated
* Currencies firm on easing signals from U.S. Fed
* Deficit f'cast weighs on zloty, political noise on leu
(Adds fresh comments, prices)
By Dagmara Leszkowicz and Sandor Peto
WARSAW/BUDAPEST, Sept 22 (Reuters) - The forint hit
five-week highs against the euro on Wednesday and Hungarian
bonds rose after a top government official said the country's
2011 deficit would be below 3 percent of GDP. []
Most central European currencies strengthened after the
Federal Reserve raised expectations it would print more dollars
to help the U.S. economy at a policy meeting on Tuesday.
[] That made investors more comfortable about
buying riskier emerging market assets although stock markets in
the region fell.
Both the Czech crown <EURCZK=> and the forint <EURHUF=>
gained 0.4 percent to the euro by 1403 GMT. The Polish zloty
<EURPLN=> firmed 0.2 percent, while the Romanian leu <EURRON=>
was flat.
The forint was bid at 278.90, slightly off five-week highs
hit at 278.10 earlier in the day. Hungarian government bond
yields dropped by 5 basis points ahead of auctions on Thursday.
<HUISSUE>
"If the positive global mood persists, I don't rule out that
the forint can reach the next technical resistance levels at
276.0/50," one foreign exchange dealer said.
The forint -- a regional underperformer in the past months
-- has been firming since the government announced earlier this
month that it would meet the EU's requirement to cut its deficit
to below 3 percent of GDP next year.
Economy Ministry Secretary of State Andras Karman said on
Wednesday that the 2011 deficit would be around 2.8 percent of
GDP.
Dealers said the market was giving the government the
benefit of the doubt on its commitment to budget austerity until
after local elections on Oct. 3.
"No-one would care in a negative global mood, (but) markets
have given Hungary time," one Budapest-based foreign exchange
dealer said.
DEFICIT, POLITICS WEIGH
The region's main stock indexes were down by 0.1-0.7 percent
but had regained some earlier losses after U.S. stocks opened
firmer.
Traders said global risk appetite remained supportive to the
region's assets, also underpinned by good government debt
auction results in the EU this week, even though debt problems
in the euro zone peripheries remained short-term risks.
Goldman Sachs said in a note that the credit default swap
(CDS) spreads of the broader emerging market universe have not
fully reflected the improvement in fundamentals since May 2009,
the peak of its "aggregate default probability measure".
"CEE3 (Polish, Czech, Hungarian) credits stand out; they
have reflected the improvement in fundamentals the least," it
said, adding that Hungary's spread around 353 basis points was
trading at the widest premium relative to fair value.
The zloty's gains were limited by a surprisingly high
forecast for this year's budget deficit from the Polish finance
minister, Jacek Rostowski. []
He said the deficit could be above 100 billion zlotys -- the
equivalent of more than 7 percent of GDP -- much higher than
previous estimates, despite an improving economy. The previous
estimate for the deficit including local government and state
agencies' shortfalls was about 6.9 percent of GDP.
Political risks clouded the leu's outlook as 10,000-17,000
people protested against the Romanian government's austerity
measures on Wednesday. The powerful opposition said this week it
was preparing a no-confidence vote against the government.
"Investors pay attention to such noise," said one dealer in
Bucharest.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.544 24.644 +0.41% +7.23%
Polish zloty <EURPLN=> 3.945 3.953 +0.2% +4.03%
Hungarian forint <EURHUF=> 278.9 279.92 +0.37% -3.07%
Croatian kuna <EURHRK=> 7.283 7.284 +0.01% +0.36%
Romanian leu <EURRON=> 4.256 4.257 +0.02% -0.44%
Serbian dinar <EURRSD=> 105.34 105 -0.32% -8.98%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -3 basis points to 77bps over bmk*
7-yr T-bond CZ7YT=RR +10 basis points to +99bps over bmk*
10-yr T-bond CZ9YT=RR +8 basis points to +91bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +5 basis points to +391bps over bmk*
5-yr T-bond PL5YT=RR 0 basis points to +368bps over bmk*
10-yr T-bond PL10YT=RR +2 basis points to +310bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -5 basis points to +582bps over bmk*
5-yr T-bond HU5YT=RR -3 basis points to +540bps over bmk*
10-yr T-bond HU10YT=RR +4 basis points to +451bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1603 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Dagmara
Leszkowicz/Sandor Peto; Editing by Patrick Graham and Susan
Fenton)
