Czech crown extends gains to five-wk highs vs euro

...350 to the euro as investors unwound crown-selling positions on expectations of interest rate hikes.

The crown rose as high as 28.340 per euro before pulling back to trade at 28.355 by 1330 GMT. It rose 1.1 percent on the day to levels around 20.600 to the dollar , nearing life-time highs against the U.S. currency.

"It may be possible that expectations of interest rate increases on the back of CPI data led investors to re-think their view of the crown's future as a funding currency," said David Lubin, regional economist at Citigroup in London.

Data released earlier on Wednesday showed inflation had inched up in line with forecasts in June to match a nine-month high, cementing expectations that the European Union's lowest interest rates will rise to near a 5-year high of 3 percent this month.

The rise in the crown -- one of the world's most popular funding currencies -- reflected buying by investors unwinding so-called carry trades, in which they previously sold the low-yield crown to lock in higher yields in other markets.

----------------- MARKET SNAPSHOT AT 1331 GMT ----------------- Crown/euro last deals at 28.355 (+0.83 pct) Crown/dollar at 20.593 bid (+1.14 pct)

5-year yield due Oct 2010 4.07 pct bid (-3 bps) 10-year yield due Jan 2016 4.46 pct bid (-3 bps)

5-yr CZK/EUR mid yield spread -47 bps (vs -47) 10-yr CZK/EUR mid yield spread -10 bps (vs -10)

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