* Zloty firms on retail sales, cbank rates seen on hold
* Stocks in region drift around 10-month highs
* Global sentiment remains supportive
(Recasts with fresh prices, comments.)
By Jason Hovet and Sandor Peto
PRAGUE/BUDAPEST, Aug 25 (Reuters) - The zloty firmed on
Tuesday, driving other Central European assets higher after
stronger than expected Polish retail sales added to chances the
central bank would hold interest rates steady on Wednesday.
The forint tracked the zloty as Monday's interest rate cut
by the Hungarian central bank left rates at 8.0 percent, a level
still attractive to foreign investors, dealers said.
Equity markets in Warsaw, Prague, Bucharest and Budapest,
were close to their highest levels since the global crisis hit
the region's economies in October 2008.
Continuing recovery in global markets buoys assets in
Central Europe which earlier this year was regarded as more
fragile than other emerging market regions, though investors are
still wary of risks.
"Given the assumption of a slow global economic recovery,
some disappointments are likely in the coming months,"
Raiffeisen said in a note. "Even though we expect the positive
trend to continue in the coming weeks, we see increasing
potential for a market consolidation in the fourth quarter."
The zloty <EURPLN=> firmed 0.6 percent to the euro by 1400
GMT to 4.073. Polish bonds reversed earlier losses, supported by
a bullish mood in global stock markets and the zloty's strength.
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.
ZLOTY, FORINT NEAR RESISTANCE LEVELS
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 question now is how much it (zloty) can strengthen,"
said Jakub Wiraszka, dealer at BRE bank in Warsaw. "I would see
the next target at 3.95 although it may stay for some time
around 4.00 as it is a very strong psychological level."
Hungary's forint <EURHUF=> also gained 0.6 percent to 266.1
versus the euro, and dealers said it may test a key resistance
level at 265 in the coming days.
Hungary's main central bank interest rate at 8.0 percent is
well above Poland's 3.5 percent despite Monday's rate cut.
Hungarian bonds changed little over the day but traders said
hopes for further rate cuts could attract foreign capital.
"Another 50 basis point rate cut is widely expected for next
month," one trader said. "As the summer is ending, foreign
investors could buy into Hungarian bonds."
Poland has avoided the recession felt by its more
export-oriented central European neighbours, which have
contracted sharply this year.
The Romanian leu <EURRON=> firmed 0.2 percent.
The Czech crown <EURCZK=> dipped 0.1 percent on the day
after nudging higher to a new 8-1/2 month high, with dealers
saying the crown was benefiting from the improved economic
outlook in the region's Western European export markets.
Czech central bank governor Zdenek Tuma said earlier this
month that a crown exchange rate of between 25 and 26 to the
euro would not harm the economy.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.36 25.339 -0.08% +5.49%
Polish zloty <EURPLN=> 4.073 4.099 +0.64% +1.03%
Hungarian forint <EURHUF=> 266.1 267.61 +0.57% -0.96%
Croatian kuna <EURHRK=> 7.319 7.323 +0.05% +0.63%
Romanian leu <EURRON=> 4.211 4.22 +0.21% -4.67%
Serbian dinar <EURRSD=> 93.09 92.98 -0.12% -3.88%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -8 basis points to 61bps over bmk*
4-yr T-bond CZ4YT=RR +3 basis points to +142bps over bmk*
8-yr T-bond CZ8YT=RR +14 basis points to +266bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -4 basis points to +364bps over bmk*
5-yr T-bond PL5YT=RR -1 basis points to +315bps over bmk*
10-yr T-bond PL10YT=RR +2 basis points to +278bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -29 basis points to +617bps over bmk*
5-yr T-bond HU5YT=RR -59 basis points to +550bps over bmk*
10-yr T-bond HU10YT=RR -44 basis points to +477bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1600 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus; writing by Jason Hovet/Sandor
Peto; Editing by Jon Boyle)
