Czech crown surges to 8-wk high on foreign buying

...buying by U.S. investment banks and economic data pointing at sustained robust expansion in the economy.

The crown also surged 1.3 percent to around 20.90 against the U.S. dollar , its highest in 2-1/2 months.

Dealers said several U.S.-based investment banks have been flooding the market with crown buy orders, sending the Czech currency through key euro support around 28.00 to levels unseen since late January.

"Even though indicators released in March show fundamentals are not as bad as we had assumed, today's move on the crown primarily resulted from strong interest in the crown from one U.S. investment house," said Jan Vejmelek at Komercni Banka.

"Once this factor fades away we expect a correction. However, at the moment it does not seem the crown should return significantly above 28.00 per euro," he added.

The crown rose 0.8 percent to 27.845 per euro by 1530 GMT, ending firmer for the fourth consecutive session.

Economic data published late last week and this week were also supportive of the currency, showing a robust pace of expansion led by domestic demand growth, which analysts believe will spark an interest rate increase later this year.

A Reuters poll showed on Friday a deep yield discount versus major currencies is likely to hamper near-term gains in the crown, but it is expected to resume its long-term appreciation later this year.

Within the next six months, the crown is expected to edge up to 27.75 to the euro, and rise to new all-time highs at 27.25 in a year from now [ID:nL16609277].

Low official interest rates, at 2.50 percent the lowest in the European Union and a record 125 basis points below euro zone equivalents, have weighed on the crown in the past months, turning it into a funding currency for regional investments.

But the crown has tended to benefit from heightened risk aversion, as investors seek shelter in the low-yield, low-volatility currency or buy it back to unwind crown-funded positions in higher-yielding but riskier currencies and assets.

----------------- MARKET SNAPSHOT AT 1530 GMT ----------------- Crown/euro last deals at 27.845 (+0.77 pct) Crown/dollar at 20.892 bid (+1.32 pct)

5-year yield due Oct 2010 3.28 pct bid (-3 bps) 10-year yield due Jan 2016 3.78 pct bid (flat)

5-yr CZK/EUR mid yield spread -64 bps (vs -59) 10-yr CZK/EUR mid yield spread -12 bps (vs -11)

Current levels versus prior domestic close at 1500 GMT ---------------------------------------------------------------