* Hungary bond auctions heavily bid, forint extends gain
* Zloty eases after sharp gains, crown moves sideways
* ECB rate decision, U.S. payroll data to be watched
By Marton Dunai and Sandor Peto
BUDAPEST, July 2 (Reuters) - The forint extended gains on
Thursday as Hungary's government bond auctions drew strong
demand, while the zloty gave up some ground after its strong
advance in recent days.
Hungary, struggling to reduce reliance on international aid,
raised the bond amounts offered at its bi-weekly auctions.
Total bids for the 24 billion forint offer topped 110
billion forints, and a debt agency official said offers may be
increased further if market sentiment remains favourable.
The forint<EURHUF=> firmed 0.6 percent per euro to 267.76 by
1034 GMT, and bond yields which shed around one percentage
points in the past two weeks dropped further to around 9.3
percent after the auction, supported by expectations for
Hungarian central bank rate cuts.[]
"The move lower, however, has become more cautious," one
Budapest-based trader said. "It's true, gradual rate cuts could
come, but if the forint suddenly retreats to 275 or weaker, a
massacre might follow in the bond market."
The region's currencies took a breather on Thursday after
sharp gains the previous session, with markets slowing before an
ECB rate decision and U.S. payroll data later in the day.
The Polish zloty was slightly weaker while the Czech crown
was broadly steady as the region slipped back into ranges.
Regional stock markets were all weaker, following core markets.
Regional currencies were expected in tight ranges, with the
forint seen between 268 and 272 to the euro, and the crown
between 25.60 and 25.80, dealers said.
"We are treading water around these levels now but I think
we will see further gains in the forint, but at a slower pace
than what we have seen in the past two days," a Budapest-based
currency dealer said.
"Technically, the forint could rise to 265," he added.
The zloty, however, was seen as a potential outperformer,
even though by 1034 GMT bid down 0.1 percent at 4.368 per euro.
The crown was trading at 25.677 to the euro, a whisker
firmer.
"A path to further strengthening (of the zloty) lays open,"
BPH analysts wrote in a daily note. Optimism on global equity
markets and potentially favourable U.S. unemployment data could
help the zloty to strengthen to 4.30 against euro," they added.
CAUTION IN MARKETS
The zloty, which outperformed the region on Wednesday but
has shed the most in the past year, losing around a quarter of
its value, could maintain an edge, Unicredit said in a note.
"Although we're not that convinced by recent Polish fiscal
news flow, long-end bond market sentiment has at least
temporarily improved, which coupled with undeniably stretched
PLN/CEE crosses should allow some PLN catch-up," Unicredit said.
Trading could be busy ahead of the U.S. long weekend,
dealers said, and the crown especially could see some brisk
trading as Czech markets are closed on Monday.
Dealers in Prague say the crown is overvalued. Czech central
bank governor Tuma, however, said current gains still left the
crown below recent highs, which helps the economy.
"(Tuma's) comments clearly indicate that recent CZK gains
are not problematic for the CNB and therefore the current CZK
level would not be a decisive element in monetary policy
decision if current levels remain," Danske Bank said in a note.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.677 25.691 +0.05% +4.19%
Polish zloty <EURPLN=> 4.368 4.363 -0.11% -5.79%
Hungarian forint <EURHUF=> 267.76 269.46 +0.63% -1.57%
Croatian kuna <EURHRK=> 7.29 7.285 -0.07% +1.03%
Romanian leu <EURRON=> 4.202 4.191 -0.26% -4.46%
Serbian dinar <EURRSD=> 93.13 93.277 +0.16% -3.92%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +3 basis points to 155bps over bmk*
4-yr T-bond CZ4YT=RR +2 basis points to +183bps over bmk*
8-yr T-bond CZ8YT=RR +4 basis points to +304bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -1 basis points to +388bps over bmk*
5-yr T-bond PL5YT=RR +2 basis points to +334bps over bmk*
10-yr T-bond PL10YT=RR 0 basis points to +296bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -22 basis points to +762bps over bmk*
5-yr T-bond HU5YT=RR -56 basis points to +684bps over bmk*
10-yr T-bond HU10YT=RR -46 basis points to +586bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1234 CET.
Currency percent change calculated from the daily domestic
close at 1500 GMT.
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(Reporting by Marton Dunai/Sandor Peto; Editing by Ron
Askew)
