* PMI rises in region, Polish zloty jumps
* Stocks continue hot streak
* Czech crown hurt by budget data
(Updates throughout)
By Jason Hovet and Marius Zaharia
PRAGUE/BUCHAREST, Aug 3 (Reuters) - A record jump in Polish
factory PMI pushed the zloty to 6-1/2 month highs on Monday,
while the Czech crown decoupled from the regional rally,
pummelled by poor budget data.
Purchasing managers' indices in Poland, the Czech Republic
and Hungary all rose to catch up with signs of economic
improvement in the euro zone [], and helped regional
currencies continue a month-long rally.
However, they still hovered below the 50 level that divides
contraction from growth, showing that the region is still
feeling the pain of recession.
Moreover, worries over a possible spillover from the Baltics
remained intense as Lithuania said it may seek help from the
International Monetary Fund if it is unable to finance its
budget deficit [].
At 1345 GMT, the zloty <EURPLN=> traded 1 percent stronger
on the day, while the Hungarian forint <EURHUF=> was 0.8 percent
up and the Romanian leu <EURRON=> was 0.3 percent firmer. The
Czech crown <EURCZK=> fell 0.3 percent.
Central European stocks continued their multi-month rally to
rise by up to 2.5 percent on Monday.
"The data were good overall... but the most striking impact
was on the Polish zloty," said Societe Generale strategist
Gaelle Blanchard.
"The (Polish) economic data has been better than expected
not only on the manufacturing side but in the household sector.
Poland is the country that has been most resilient," she added.
Dealers also noted some cross-trades in the region favouring
the zloty, as the Polish economy is the only one in central
Europe hoping to grow this year, while chances for further rate
cuts there were limited in the short-term.
"I've seen some intra-region action, favouring the zloty
against the other currencies," one dealer in Bucharest said.
BUDGET RISKS
Investors have started taking stock of central Europe's
economies, though strategists warn recent gains in regional
currencies, stocks and bonds risk moving beyond fundamentals,
especially as unemployment rises and budget deficits balloon.
Czech budget data, showing the seven-month Czech state
budget gap had already grown to double the original target
[], underlined the risk.
In debt markets, Polish bonds were little moved by an
announcement that the finance ministry will offer 3-4.5 billion
zlotys worth of two-year bonds on Wednesday [].
A finance ministry forecast predicting inflation remained
flat at 3.5 percent in July also failed to move Polish bonds
[]. Czech bonds were virtually unmoved by the
finance ministry's September issuance calendar. []
Dealers there expect yields to move lower again this week
after tracking western yields down in recent sessions.
"Markets may speculate on rate cuts before the central bank
(this week)," Komercni Banka trader Dalimil Vyskovsky said.
The Czech central bank meets on Thursday, although a slim
consensus sees policymakers holding rates steady following the
improving economic indicators, and after Polish rate setters
kept rates unchanged last week.
In Romania, where the central bank convenes on Tuesday,
analysts expect a half point cut to bring interest rates in line
with Hungary at 8.5 percent.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.66 25.59 -0.27% +4.26%
Polish zloty <EURPLN=> 4.101 4.14 +0.95% +0.34%
Hungarian forint <EURHUF=> 264.6 266.6 +0.76% -0.4%
Croatian kuna <EURHRK=> 7.336 7.352 +0.22% +0.4%
Romanian leu <EURRON=> 4.199 4.21 +0.26% -4.4%
Serbian dinar <EURRSD=> 93.047 92.997 -0.05% -3.83%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -6 basis points to 136bps over bmk*
4-yr T-bond CZ4YT=RR -5 basis points to +175bps over bmk*
8-yr T-bond CZ8YT=RR -6 basis points to +284bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -2 basis points to +368bps over bmk*
5-yr T-bond PL5YT=RR -3 basis points to +301bps over bmk*
10-yr T-bond PL10YT=RR -9 basis points to +275bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -9 basis points to +691bps over bmk*
5-yr T-bond HU5YT=RR -11 basis points to +614bps over bmk*
10-yr T-bond HU10YT=RR -9 basis points to +528bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1645 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 and
Marius Zaharia, editing by Stephen Nisbet)
