* Hungary details plan after Greece comments shook market
* Forint up on day, off year low; bonds jump
* OTP holds gains amid bank tax plan, Hungary stocks drop
* Hungary sells all of T-bill offer, yield up from week ago
* Trade still choppy, likely to stay volatile
(Updates throughout with Hungary plan)
By Jason Hovet
PRAGUE, June 8 (Reuters) - The forint extended a rebound on
Tuesday and shares in Hungary's largest bank pared gains after
the country's government detailed a deficit-cutting plan that
sought to reassure investors it would not go the way of Greece.
Hungarian Prime Minister Viktor Orban told parliament he
would cut public wages, overhaul the tax system and ban mortgage
lending in foreign currencies to keep the budget deficit at a
3.8 percent of annual economic output goal agreed with lenders.
Investor focus has turned sharply toward Hungary in the past
week after some officials suggested the country was close to a
Greek-style debt crisis, dragging down central Europe and
hitting global assets like the euro and oil. []
The forint rose just ahead of Orban's midday speech when
some of the measures leaked out and extended that rise before
pulling back to levels seen before the speech.
The unit <EURHUF=> bid 0.6 percent up at 283.21 per euro by
1332 GMT, off a one-year low near 290 hit on Friday but down
almost 3 percent since late Wednesday.
Bonds extended early gains with the 5-year yield falling 15
basis points when the measures were announced.
Other regional currencies followed the forint. Romania's leu
<EURRON=> added 0.5 percent and the Czech crown <EURCZK=> 0.1
along with the Polish zloty <EURPLN=>.
Analysts and dealers said the measures were mostly market
supportive but still expect choppy trade ahead in the region.
Hungary's debt woes are far less serious than those of
Greece and fund investors have yet to flee Hungary and central
Europe entirely. []
But the country still has to contend with a large stock of
foreign currency loans taken by people seeking lower interest
rates from loans in euros or Swiss francs.
"Overall, we believe the spending cuts and the gradual
nature of tax modifications are all welcome," HSBC said.
"New foreign currency mortgages will be barred, which is
good news... but the real problem is the large existing stock of
FCY mortgages. But overall, the announcements are, on balance,
market supportive."
Leading Hungarian bank OTP <OTPB.BU> stayed positive but
gave up much of an earlier 4 percent rise after it was confirmed
a new banking tax would be included among the measures.
Analysts said the news had been expected, and the bank was
still correcting from a more than 12 percent loss in the past
week.
Budapest stocks <> fell more than 1 percent on the day.
* For a TAKE A LOOK on Hungary, double-click []
PASSES FIRST TEST
Earlier in the day, in its first big test of market
sentiment this week, Hungary sold all 45 billion forints of
3-month T-bills on offer, with the average yield up 7 basis
points from last week to 5.26 percent, []
Market watchers took comments on a Greece-style problem as
posturing for domestic audiences. But while the market reaction
may have been overdone, the region was unlikely to recover
quickly and trade would stay volatile.
"We reiterate our opinion that markets previously
overreacted," SEB said in a trade note in which it also
recommended buying a euro/zloty put spread.
"With volatility likely to remain elevated in the near term
but given the fundamentally unjustified contagion from Hungary
to the zloty and our bullish view on the zloty in the medium-
and long-term, we released (the) recommendation," it said.
Analysts expect central European economic growth -- led by
Poland -- to outpace that of the western EU this year, though
the pace is dependent on trade to the euro zone.
Romania's adjusted industrial output growth slowed in April,
hit by a choppy recovery in the euro zone and further denting
hopes the economy will exit recession this year. []
Bucharest dealers said investors were on the sidelines
before a government no-confidence vote for proposed pay cuts
next week, crucial to its own IMF-led aid package.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.963 26.00 +0.14% +1.37%
Polish zloty <EURPLN=> 4.142 4.145 +0.07% -0.92%
Hungarian forint <EURHUF=> 283.21 284.9 +0.6% -4.54%
Croatian kuna <EURHRK=> 7.241 7.252 +0.15% +0.94%
Romanian leu <EURRON=> 4.216 4.235 +0.45% +0.51%
Serbian dinar <EURRSD=> 103.49 103.31 -0.17% -7.35%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +1 basis points to 166bps over bmk*
7-yr T-bond CZ7YT=RR +2 basis points to +175bps over bmk*
10-yr T-bond CZ9YT=RR -2 basis points to +172bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
5-yr T-bond HU5YT=RR -15 basis points to +592bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1531 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; editing
by Jason Webb, John Stonestreet)
