* Crown, zloty, forint test key levels
* Risk appetite high, but fiscal concerns persist
(Adds fixed income, comment on upcoming Romania tender)
By Marius Zaharia
BUCHAREST, July 28 (Reuters) - Central European currencies
held on to recent gains on Wednesday, with fiscal concerns, key
technical levels and the risk of central bank verbal reactions
limiting space for further firming.
Regional markets came under pressure earlier this month as
Hungary suspended IMF/EU talks and Romania struggled to keep its
budget deficit under control, but euro gains against the dollar
and strong corporate results have boosted sentiment this week.
The Czech crown traded near a 3-1/2 month high and was close
to firming below 25 per euro for the first time since September
2009. But investors are wary that it trades around levels where
the central bank has intervened verbally in the past.
"In the EEMEA region we will closely watch EUR/CZK which is
still trading close to ... 25.00 where the central bank has
interfered several times in the last 12 months amid fears that
the too strong currency would hurt export performance,"
UniCredit said in a note.
"We think that the (central bank) CNB might let the CZK
appreciate below the 25.00 level this time."
The Polish zloty was testing levels below 4.0 per euro,
which it hit on Tuesday for the first time since mid-May, and
dealers said that if it holds on in that territory on Wednesday,
the unit would be poised for further gains.
Hungary's forint shrugged off data showing a decline in
unemployment [] and lost its morning gains as
dealers said it found stiff resistance at 281.5 per euro.
One dealer in Budapest said that if it firms further, next
obstacles will be 281 and 280 in coming weeks, but it was
unlikely to break that level.
At 1006 GMT, the forint <EURHUF=> traded at 283.05 per euro,
the crown <EURCZK=> was bid at 25.029, while the zloty <EURPLN=>
was quoted at 4.001, after hovering below 4.0 per euro for most
of the morning. Romania's leu <EURRON=> was trading around
Tuesday's close like its peers.
"Fiscal issues are the main obstacle preventing a
significant strengthening," one trader in Warsaw said.
ROMANIA EURO TENDER
Investors were eyeing a Romanian tender to sell 400 million
euros of 1-year treasury bills on the domestic market.
The finance ministry is seeking alternative ways of
financing since it cannot raise enough cash by sticking to its
tactics of rejecting yields above 7 percent at domestic
leu-denominated paper auctions.
Investors demand higher yields to compensate for
uncertainty over the success of recent cuts in public wages and
tax hikes Romania enforced to try to keep its budget deficit
within sustainable limits.
The International Monetary Fund has sent a 10-day mission to
Bucharest on Monday to review the government's progress.
Dealers expect high interest in the local euro tender on
Wednesday and say the ministry may accept to pay a premium of
around 5 percent.
"The euro rate for this tenor adjusted with Romanian risk
premium would imply a yield level of about 4.4 percent," ING
Bank said in a note.
"The ministry initially announced the instrument would be a
5 percent coupon T-bond before changing it to a discount paper.
We believe it will manage to issue the planned amount somewhere
in the middle of a range defined by the above levels."
Debt markets in the region were stable, while stocks were
mixed, with banking shares dipping in a correction following
recent gains triggered by sound results at stress tests for
central European lenders.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.029 25.025 -0.02% +5.15%
Polish zloty <EURPLN=> 4.001 3.999 -0.05% +2.57%
Hungarian forint <EURHUF=> 283.05 282.62 -0.15% -4.49%
Croatian kuna <EURHRK=> 7.242 7.245 +0.04% +0.93%
Romanian leu <EURRON=> 4.25 4.248 -0.05% -0.3%
Serbian dinar <EURRSD=> 105.85 105.92 +0.07% -9.42%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +14 basis points to 97bps over bmk*
7-yr T-bond CZ7YT=RR -2 basis points to +89bps over bmk*
10-yr T-bond CZ9YT=RR -1 basis points to +100bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +3 basis points to +383bps over bmk*
5-yr T-bond PL5YT=RR +1 basis points to +356bps over bmk*
10-yr T-bond PL10YT=RR +2 basis points to +304bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1106 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaux, writing by Marius Zaharia,
Editing by David Brough)
