* Crown firms past 25.0/EUR to 20-month highs
* Zloty hovers around key 4.0 level vs euro
* Romania sells EUR 1.2 bln 1-yr bills, 3 times the plan
* Hungary PM sees rating downgrades, bond auctions seen safe
(Recasts with new price movements.)
By Marius Zaharia and Sandor Peto
BUCHAREST/BUDAPEST, July 28 (Reuters) - The Czech crown
<EURCZK=> firmed to 20-month highs against the euro on
Wednesday, surging through a key technical level, while other
Central European currencies rebounded from earlier losses.
Romania sold 1.2 billion euros worth of one-year Treasury
bills, three times more than planned, accepting a rise in the
average yield as it needs the funds to plug a hole in its
budget. []
Assets in the region retreated earlier in the day as the
past week's rally lost steam, with Poland's zloty dancing around
the key 4.0 level against the euro and the European single
currency itself <EUR=> hovering around 1.3 versus the dollar.
The crown, the strongest performer in the region this year,
decoupled from the rest of the region and broke through the 25.0
level versus the euro to 20-month highs at 24.8, helped by
improving economic data at home and in Germany.
Fears that tight credit conditions could hamper recovery in
Germany, the region's key trading partner, appear to be fading
according to key surveys published on Wednesday. []
Czech dealers said heavy buying by bigger players to start
the week led to more local accounts seeking crowns.
"Nobody wants to be long on EUR/CZK at the moment," said
Raiffeisenbank dealer Ivo Prokop.
"The main reasons are still macro reasons... (The new
government) also looks ready to make strong changes in public
finances to improve the budget."
Before the crown's surge investors were wary that it was
trading around levels where the central bank had intervened
verbally in the past.
At 1404 GMT, the crown was bid at 24.852 against the euro,
firmer by 0.7 percent from Tuesday. The zloty<EURPLN=> was flat
at 4.0, the Hungarian forint <EURHUF=> firmed 0.1 percent to
282.3 and the leu eased 0.1 percent to 4.252.
European stocks reversed a week of rises on Wednesday,
putting pressure on the European Union's emerging markets, but
the late strengthening of the euro -- the region's reference
unit -- past 1.3 against the dollar was a positive signal.
"Right now I don't feel that the sentiment is reversing,
this is just healthy profit taking. Things are still optimistic,
said Karol Zaluski, head of FX at ING Bank.
HUNGARY AWAITS AUCTION
Romania had to accept a 4.9 percent average yield at its
euro-denominated Treasury bill auction, a 65 basis point rise.
The euro issue was an alternative to leu debt sales as the
country had been unwilling to accept yields of above 7 percent
at leu debt auctions.
The finances of Romania and neighbouring Hungary triggered
concerns in the past months, and forint markets have well
underperformed the region in the past two weeks.
Hungary will hold on Thursday its first government bond
auctions <HUISSUE> since it suspended talks with the
International Monetary Fund (IMF) in the middle of July.
Hungarian government bonds fell after the news about the
break of the talks and have partially recovered since then, but
yields rose by 3-5 basis points on Wednesday in thin trade.
The market shrugged off comments by Prime Minister Viktor
Orban who said that the country could see its credit rating cut,
but any market turmoil would be temporary. []
"I think the auctions will be sold if the current sentiment
stays," one bond trader said.
"Many short positions were opened last Friday (when ratings
agencies threatened Hungary with downgrades []),
and even negative news are unable to trigger more sales now."
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.852 25.025 +0.7% +5.9%
Polish zloty <EURPLN=> 4 3.999 -0.03% +2.6%
Hungarian forint <EURHUF=> 282.31 282.62 +0.11% -4.24%
Croatian kuna <EURHRK=> 7.244 7.245 +0.01% +0.9%
Romanian leu <EURRON=> 4.252 4.248 -0.09% -0.34%
Serbian dinar <EURRSD=> 106.1 105.92 -0.17% -9.63%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +6 basis points to 60bps over bmk*
7-yr T-bond CZ7YT=RR +1 basis points to +91bps over bmk*
10-yr T-bond CZ9YT=RR +6 basis points to +96bps 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 +6 basis points to +359bps over bmk*
10-yr T-bond PL10YT=RR +3 basis points to +306bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +9 basis points to +597bps over bmk*
5-yr T-bond HU5YT=RR +7 basis points to +554bps over bmk*
10-yr T-bond HU10YT=RR +6 basis points to +454bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1604 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/Sandor Peto, Editing by David Brough)
