UPDATE 3-Slovak crown hits new record, c.bank intervenes

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By Martin Santa

BRATISLAVA, March 8 (Reuters) - The Slovak central bank intervened on the market on Thursday to halt firming of the crown after news of foreign direct investment inflows and accelerating economic growth drove the unit to new record highs.

The Slovak unit firmed as far as 33.800 per euro, up 1 percent from Wednesday, but several waves of central bank (NBS) interventions knocked it back to 34.080 as of 1550 GMT, dealers said.

NBS officials were not available for comment on the intervention. Analysts said the NBS looked unhappy with the fast rise of the crown, which was the reason it had cited in the past when it tried to regulate the unit's movements.

"An intervention was expected, the only question was at what level it would come," said Maria Valachyova, a senior analyst at Slovenska Sporitelna.

"In the central bank's view, the crown is stronger than what would be justified by fundamentals," Valachyova said.

The Slovak currency has firmed more than 4 percent against the euro in the past six weeks, from this year's lows of 35.440. The previous all-time high was 34.050 per euro, which the unit hit at the end of December.

Slovakia posted record gross domestic product growth of 8.3 percent in 2006, driven mainly by investments in its export-oriented car industry. Latest data for industrial output showed a 17.5 percent year-on-year increase in January.

Investors have been lured to crowns by Slovakia's plan to adopt the euro in 2009, ahead of the neighbouring Czech Republic, Poland and Hungary which are struggling to cut fiscal deficits.

The Slovak crown received a fresh boost on Thursday as South Korea's Samsung Electronics confirmed it had picked Slovakia for a new liquid crystal display assembly plant.

Economic growth is expected to accelerate further this year and beat the 2006 rate as new car assembly plants of PSA Peugeot Citroen and Kia Motors, completed last year, boost production.

ERM-2 PARITY TALK

The crown was the best performing currency in central Europe in 2006, rising by almost 10 percent against the euro. The last intervention on the market by the central bank to knock the crown down from its previous record highs came in December.

However, it used repo tenders early in 2007 to leave the banks with billions of crown of excess liquidity in order to make the local currency less attractive for hot money.

"With strong economic fundamentals, it will be difficult for the central bank to undermine bullish sentiment towards the crown," said 4Cast analyst Piotr Matys.

"The bank is now likely to use its strategy of rejecting part of the bids at 2-week repo auction next week," he said.

The unit's firming has helped to keep a lid on consumer prices, aiding Slovakia's attempts to meet its euro adoption plan.

The crown is now 11.8 percent above the central parity rate of its plus/minus 15 percent fluctuation band set in the exchange rate mechanism ERM-2, within which an euro-applicant country must prove currency stability.

The crown's latest rise has renewed market talk about a possible shift in the parity rate as analysts said economic growth and rising productivity would justify a stronger level.

"The NBS may try to slow down crown firming for some more time, but fundamentals speak in favour of a parity shift," said CSOB bank analyst Marek Gabris. ((Writing by Peter Laca, editing by Gerrard Raven; Reuters Messaging: peter.laca.reuters.com@reuters.net; +421 2 5341 8402))

Keywords: SLOVAKIA CROWN/RECORD