* Fitch downgrade hits Hungary markets, parlt backs budget
* Hungary changes rules for c.bank appointments
* Romania govt survives 4th no-confidence motion this yr
(Updates prices, adds Hungarian govt, new cbank rules)
By Jason Hovet and Jana Mlcochova
PRAGUE, Dec 23 (Reuters) - The Budapest stock market dropped
nearly one percent and the forint shed about half that amount on
Thursday after Fitch downgraded Hungary's rating on worries over
its medium-term budget outlook.
The cut to BBB-, one notch better than speculative grade,
came before Hungary's parliament voted its approval of the
country's 2011 budget later on Thursday.
Hungary is now on the brink of "junk" debt status at all
three big rating agencies.
The government has pledged to become next year the first
since Hungary joined the European Union in 2004 to cut the
fiscal gap below 3 percent of gross domestic product (GDP),
making it a top performer in the 27-member bloc.
But analysts have warned the budget takes advantage of
one-off revenues and forgoes tough spending cuts. Markets are
looking toward February, when the government plans to unveil
reforms for the coming years. []
Hungary's economy minister said the downgrade was
regrettable but not surprising []
The forint <EURHUF=> was down 0.3 percent at 1507 GMT at
277.14 per euro, erasing some of the losses immediately after
the downgrade when it was down 0.7 percent on the day.
Budapest stocks <> fell 0.8 percent on the day.
"The downgrade is negative as Hungary is now perched
precariously on speculative grade," said Kieran Curtis, emerging
debt fund manager at Aviva in London, adding there was still a
risk of further cuts by ratings agencies.
"Hungary will fall out of these indices if its ratings go to
junk and a lot of index fund managers will have to sell their
Hungarian debt. For an economy as small as Hungary's the impact
on its borrowing costs could be large."
Hungary is coming off an IMF/EU aid deal and plans to issue
foreign bonds worth 4 billion euros "as soon as possible" next
year to refinance expiring debt and repay a part of aid -- which
will be a strong test of investor confidence.
Analysts said the downgrade my prompt more policy tightening
after Hungary raised rates by a cumulative 50 basis points at
the last two meetings to fend off price pressures fuelled by
recent tax changes.
But the government approved late on Thursday new rules of
central bank appointments in a move which is widely seen as an
attempt by the ruling Fidesz party to force the central bank
into monetary easing to advance its pro-growth agenda.
[]
OTHER MARKETS CALMER
Other central European markets were mostly steady going into
the holiday period.
Prague stocks <> were up for a fifth straight session for
most of the day and hit a new seven-month high before giving up
the gains and closing 0.03 percent down on the day.
The bourse has gained nearly 11 percent this month to lead
the region in a year-end global stocks rally fuelled by better
growth outlooks.
"There is a little window-dressing toward the end of the
year, mainly an adjustment in some prices mainly in lower-liquid
stocks," said Viktor Reischig, a trader at Prague broker Patria
Finance.
Romania's leu <EURRON=> was steady around 4.28 per euro,
unchanged after the government survived, as expected, its fourth
no-confidence vote this year -- and second in a week -- as the
opposition fights the cabinet's austerity drive. []
Parliament approved on Wednesday an austere 2011 budget that
will further cut the recession-hit country's fiscal gap, a key
requirement for maintaining a 20 billion euro IMF aid package.
The Polish zloty <EURPLN=> gained 0.45 percent against the
euro, bidding at 3.969 and outperforming regional peers.
Poland's state-owned BGK bank was buying zlotys in exchange
for euros, two market sources told Reuters under the condition
of anonymity, a move already previously done by BGK.
In the Czech Republic, which will probably not raise
interest rates until later next year, the crown <EURCZK=> dipped
0.25 percent to a new five-month low, bidding at 25.308 per
euro.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.29 25.272 -0.07% +4.06%
Polish zloty <EURPLN=> 3.968 3.986 +0.45% +3.43%
Hungarian forint <EURHUF=> 277.72 276.35 -0.49% -2.65%
Croatian kuna <EURHRK=> 7.385 7.391 +0.08% -1.03%
Romanian leu <EURRON=> 4.283 4.283 0% -1.06%
Serbian dinar <EURRSD=> 104.69 107.17 +2.37% -8.42%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -5 basis points to 87bps over bmk*
7-yr T-bond CZ7YT=RR +4 basis points to +88bps over bmk*
10-yr T-bond CZ9YT=RR +1 basis points to +93bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +3 basis points to +377bps over bmk*
5-yr T-bond PL5YT=RR -4 basis points to +355bps over bmk*
10-yr T-bond PL10YT=RR 0 basis points to +302bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +1 basis points to +650bps over bmk*
5-yr T-bond HU5YT=RR -3 basis points to +584bps over bmk*
10-yr T-bond HU10YT=RR -5 basis points to +487bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1615 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
(Editing by Stephen Nisbet)
