* Forint, zloty lead gains after falls on Monday
* Crown firms slightly as government crisis defused
* Dealers say sentiment fragile, euro zone crisis watched
* Hungary may issue euro-denominated bond
(Recasts with new comments, prices)
By Jana Mlcochova and Sandor Peto
PRAGUE/BUDAPEST, April 19 (Reuters) - Investors drove up
central European currencies on Tuesday in bargain hunting a day
after Standard & Poor's cut its U.S. ratings outlook to
negative, pushing the region's markets lower.
But investors were cautious as euro zone debt concerns
remained in their sights, saying they did not know how long the
bullish trend would last.
The regional assets that were hardest hit on Monday led the
rebound.
Hungary's forint <EURHUF=> firmed 0.6 percent versus the
euro by 1406 GMT to 266.12, and the Polish zloty <EURPLN=>
gained half a percent to 3.972. Hungary's stock index <>
firmed 1.9 percent and Hungarian bond yields dropped 4-7 basis
points.
"The forint seems to be in a range now between 265 and 268,"
one Budapest-based currency dealer said. "The direction will
depend on whether more news comes about issues like Greece (debt
restructuring)."
Another dealer in Budapest said risk appetite seemed to
return and Hungarian assets may firm further if the government
decides to issue a euro-denominated bond after meetings with
European investors on Monday and Tuesday.
"Thursday's government bond auctions <HUISSUE> can also
influence sentiment, but the auctions usually depend on the
international market mood," the dealer said.
In the zloty/forint cross <PLNHUF=R>, which is closely
watched by investors, the forint crossed the key 67 level and
may firm further unless expectations for central bank rate
increases in Poland strengthen again, the dealer added.
Hungary's central bank (NBH) kept its base rate on hold on
Monday at 6 percent, well above the 4 percent main rate of the
Polish central bank.
Hungarian ex-bonus private sector gross wages, a number
followed closely by the NBH, grew by an annual 3.0 percent in
February. Analysts said moderate wage growth did not strengthen
the case of a rate increase by the central bank.
The zloty and Polish bonds showed little reaction to
weaker-than-expected 7 percent annual growth in Poland's
industrial output in March and a pick-up in the annual producer
price index to 9.3 percent in March. []
"We expect the torpor (in the Polish bond market) to last
until Easter, though things could change a little after
Wednesday's switch auction -- this is our only hope," one
Warsaw-based bond dealer said.
CROWN EXTENDS GAIN
Elsewhere in the region, the Czech crown <EURCZK=> firmed
0.2 percent against the euro to 24.13, slightly off 11-week
highs hit in early trade.
It had firmed on Monday even as all other currencies in the
region fell. The safe-haven crown is often used as a funding
unit in regional cross-trades.
It received support on Tuesday from a deal within the Czech
ruling coalition to end a government crisis. []
Bolstered by the government's efforts to balance the budget by
2016 and rein in public debt, the crown had largely shrugged off
the row.
"The unit has been resisting the 24.100 level and it can be
expected that after an initial break through this level, a
number of (euro) buyers will appear on the market, betting on a
correction back to 24.500," said David Sykora, a currency dealer
at bank CSOB.
Romania's leu was virtually flat. Dealers and analysts say
the country's central bank is comfortable with the currency's
gain of more than 3 percent this year because it eases the
impact of higher energy and commodity prices and lessens the
need to raise interest rates.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2011
Czech crown <EURCZK=> 24.13 24.17 +0.17% +3.61%
Polish zloty <EURPLN=> 3.972 3.99 +0.45% -0.35%
Hungarian forint <EURHUF=> 266.12 267.66 +0.58% +4.46%
Croatian kuna <EURHRK=> 7.354 7.359 +0.07% +0.35%
Romanian leu <EURRON=> 4.087 4.088 +0.02% +3.57%
Serbian dinar <EURRSD=> 101.24 101.29 +0.05% +4.63%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -8 basis points to -9bps over bmk*
7-yr T-bond CZ7YT=RR -5 basis points to +50bps over bmk*
10-yr T-bond CZ9YT=RR -5 basis points to +65bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -8 basis points to +324bps over bmk*
5-yr T-bond PL5YT=RR -6 basis points to +317bps over bmk*
10-yr T-bond PL10YT=RR -6 basis points to +285bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -15 basis points to +454bps over bmk*
5-yr T-bond HU5YT=RR -10 basis points to +430bps over bmk*
10-yr T-bond HU10YT=RR -11 basis points to +387bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1606 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Writing by Michael Winfrey/Jana Mlcochova/Sandor Peto,
Editing by John Stonestreet)
