Czech crown up from 15-mth low, eyes cbank meeting

...investor appetite for the carry trade relieved selling pressure on the regional funding currency.

The crown gained 0.2 percent on the day to trade at 28.670 per euro by 0855 GMT, bouncing off an earlier low of 28.760, a level within sight of 15-month lows seen last week. Other central European currencies shed up to a quarter percent.

Falling stock markets, due partly to concerns about the exposure of U.S. lenders to subprime mortgages, have reduced investor interest in risky assets. That boosted low-yielding funding currencies like the Japanese yen and the Czech crown.

"The crown is benefiting from increased risk aversion which is also dampening the carry trade. This should help the crown hold near the 28.70 per euro level," analysts at the country's largest bank CSOB said in a report to clients.

Alongside the yen, the crown has become a popular funding currency for a strategy known as "carry trade," in which investors sell a low-yielding currency for higher-yielding assets with the goal of capturing the interest rate spread.

Investors in the Czech market have been weighing the chances of the weak crown spurring an interest rate hike from the central bank (CNB) at its monthly policy meeting on Thursday. A weak currency fans inflation concerns in the open Czech economy.

A Reuters poll taken last week [CNB/INT] showed all but one of the 15 analysts expecting the CNB to take a break from raising interest rates this month before another tightening of policy in July. One forecast a 25 basis point hike this month.

The record 125 basis point gap between the CNB's 2.75 percent policy rate and the 4.0 percent euro zone equivalent has dampened the crown's attractiveness despite robust fundamentals and faster economic growth than the euro zone.

But several analysts have said the crown's fall this month, extending its losses to more than 4 percent so far this year, shortened the odds on a surprise interest rate hike to a near 5-year high of 3.0 percent on Thursday.

----------------- MARKET SNAPSHOT AT 0855 GMT ----------------- Crown/euro last deals at 28.670 (+0.23 pct) Crown/dollar at 21.335 bid (-0.03 pct)

5-year yield due Oct 2010 4.12 pct bid (flat) 10-year yield due Jan 2016 4.47 pct bid (-3 bps)

5-yr CZK/EUR mid yield spread -39 bps (vs -43) 10-yr CZK/EUR mid yield spread -7 bps (vs -10)

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