Czech crown holds up in global selloff, data firm

...global selloff and buck the slide in other central European markets.

The crown touched a more than 3-month low of 28.490 per euro at midday before recovering to trade at 28.420 by 1235 GMT, slightly stronger than opening levels.

Dealers said the crown could keep outperforming its regional peers as some investors unwind carry trades in which they sell the low-yielding crown to fund purchases of higher yielding assets and currencies such as the Hungarian forint .

The forint and neighbouring Polish zloty and the Slovak crown also erased early losses but remained weaker than late on Thursday, unlike the Czech currency which held largely flat from the previous session's close.

Tumbling global stocks against a backdrop of rising interest rates and bond yields helped to support the yen -- the world's most popular funding currency -- as investors scaled back yen-selling positions used to fund investments elsewhere.

"The crown could go weaker still with other emerging Europe currencies despite the good data and the carry trade unwind, though the carry trade unwinding will help the crown outperform in case of an extended sell-off," said a London-based trader.

Strong Czech economic growth data, showing a sustained 6.1 percent annual rate on the back of the strongest household spending rise in more than 3 years, were a boon for the crown, reinforcing market expectations of an interest rate rise as soon as July.

The selloff in global fixed income markets took local currency debt yields and money market rates as much as 7 basis points higher, as euro zone 10-year yields extended multi-year highs.

The Czech central bank raised interest rates by 25 basis points to a more than 4 year high of 2.75 percent last month, amid buoyant consumption and resurgent inflation.

"Due to the prevalence of carry trades, the crown has been trading weaker and the import competition is less of a limiting factor for inflation," said Istvan Zsoldos, economist at Goldman Sachs in London.

"We revised our rate outlook and we now expect an additional 125 basis points of hikes from current levels over the next 12 months, more than the market is pricing. We are comfortable with our view in light of the GDP release," he added.

REPORT ON Q1 GDP AND MAY CPI DATA...............[ID:nL08216043]

----------------- MARKET SNAPSHOT AT 1237 GMT ----------------- Crown/euro last deals at 28.420 (+0.02 pct) Crown/dollar at 21.273 bid (-0.98 pct)

5-year yield due Oct 2010 3.94 pct bid 10-year yield due Jan 2016 4.37 pct bid

5-yr CZK/EUR mid yield spread -58 bps 10-yr CZK/EUR mid yield spread -21 bps Current levels versus prior domestic close at 1500 GMT ---------------------------------------------------------------