* Hungary details plan after Greece comments shook market
* Forint flat on day, erases early gains; bonds jump
* OTP holds gains amid bank tax plan, Hungary stocks drop
* For a TAKE A LOOK on Hungary, double-click []
(Adds analyst comment, updates prices)
By Jason Hovet
PRAGUE, June 8 (Reuters) - The forint's rebound stalled on
Tuesday and shares in Hungary's largest bank came off earlier
highs after the 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 slash 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 as agreed
with international lenders.
Investor focus has turned to Hungary since late last week
when some officials suggested the country was close to a
Greek-style debt crisis, dragging down central European markets
and hitting global assets like the euro and oil. []
Analysts expect the government's plan to tackle debt and
maintain the deficit target will be positive for markets in the
short term. That would likely push the forint past the
psychological 280 per euro level in the coming session -- also
giving bonds a boost -- but could drag on growth later, they
say.
The forint <EURHUF=> bid flat on the day at 284.8 per euro
by 1512 GMT, after rebounding more than 1 percent on Monday from
a one-year low near 290 on Friday. It is still down more than 3
percent since late last Wednesday.
It was trading around 1 percent higher on the day just ahead
of Orban's midday speech on Tuesday when some of the measures
leaked out, but it shed those gains later.
Bonds, however, extended early gains with the five-year
yield falling 15 basis points when the measures were announced.
As well as cutting public wages and banning lending in
foreign currencies, the government also announced, as expected,
that it planned to impose a new tax on banks and financial
institutions as it seeks to slash debt.
Analysts said the banking tax may hurt growth longer term by
crimping banks' ability to lend, which would put a cap on future
currency and bond gains.
"It's a near-term positive because at least we heard (a
plan) and the government is sticking to its budget deficit
targets, but it still raises questions around growth," UniCredit
strategist Gyula Toth said. "I don't think the forint can get
(to previous levels), I don't think we will get far below 280."
Other regional currencies followed the forint. The Romanian
leu <EURRON=> added 0.3 percent and the Czech crown <EURCZK=>
rose 0.1 percent. The Polish zloty <EURPLN=> was flat.
Hungary's economy is seen stagnating this year after a 6.3
percent contraction last year. Its 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.
Budapest stocks <> fell 0.3 percent on the day.
Leading Hungarian bank OTP <OTPB.BU> stayed positive but
gave up much of an earlier 4 percent rise after it was confirmed
the bank tax would be included in the measures.
Analysts said the news had been expected and did little to
impact OTP's valuation. The bank also lost 12 percent in a week.
FIRST BIG TEST
Market watchers took Hungarian officials' comments last week
on a Greece-style problem as posturing for domestic audiences.
Earlier in the day, in its first big test of market sentiment
this week, Hungary sold all 45 billion forints on offer in a
three-month T-bill issue. []
"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 next week on proposed pay
cuts, 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=> 25.987 26.00 +0.05% +1.27%
Polish zloty <EURPLN=> 4.146 4.145 -0.02% -1.01%
Hungarian forint <EURHUF=> 284.8 284.9 +0.04% -5.07%
Croatian kuna <EURHRK=> 7.23 7.252 +0.3% +1.1%
Romanian leu <EURRON=> 4.221 4.235 +0.33% +0.39%
Serbian dinar <EURRSD=> 103.53 103.31 -0.21% -7.39%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -1 basis points to 164bps over bmk*
7-yr T-bond CZ7YT=RR +2 basis points to +175bps over bmk*
10-yr T-bond CZ9YT=RR +1 basis points to +174bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +3 basis points to +637bps over bmk*
5-yr T-bond HU5YT=RR -8 basis points to +599bps over bmk*
10-yr T-bond HU10YT=RR -25 basis points to +510bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1714 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, Susan Fenton)
