Czech crown nears 3-1/2 mth highs, seen firming

...prompted investors to unwind some crown-funded carry trades.

The crown, seen as a central European safe haven currency, broke through the 28 psychological level to advance as high as 27.935 per euro .

It traded a third of a percent firmer from late Tuesday at 27.975 by 0735 GMT, nearing Friday's 3-1/2-month high of 27.91.

The Prague bourse's blue-chip PX index fell 2.6 percent to a four-month low, as credit concerns and U.S. subprime mortgage woes sparked a global equities sell-off.

The crown bucked general weakness in emerging markets because of mounting concerns about the health of global credit markets, which led investors to unload riskier assets.

"Investors are squaring positions in regional currencies against the crown because of the U.S. credit troubles. The next key level is 27.900," said Miroslav Tutter, senior currency dealer at bank CSOB in Prague.

On the domestic front, the Czech Purchasing Manager's Index hit a new survey high in July, pointing to the strongest improvement in business conditions in just over six years of data collection [ID:nL01313203].

The Finance Ministry is due to release the end-July central state budget balance sometime after 1200 GMT.

Czech interest rates at just 3 percent, the lowest in the European Union, have turned the Czech crown into a popular source of cheap funds for investors looking to lock in higher yields elsewhere in emerging markets through carry trades.

Rising anxiety over riskier investments prompted investors to buy back crowns they previously sold to fund such trades.

The crown has been also drawing support from expectations of further interest rate hikes by the central bank following a 25 basis point rate rise last week.

---------------------- MARKET SNAPSHOT ------------------------ Crown Currency Latest Prev Pct change Pct change

close on day in 2007 vs Euro 27.975 28.010 +0.13 -1.70 vs Dollar 20.466 20.490 +0.12 +1.73

Equities PX Index 1,743.0 1,789.8 -2.61 +9.70

Domestic bonds Yld change Yld change

on day in 2007

5Y Yield 4.26 4.25 +0 bps +99 bps 10Y Yield 4.62 4.62 +0 bps +76 bps

Mid Yield Spreads (in bps) Spd change Spd change

on day in 2007

5Y vs -1 -0 -0 +63 10Y vs +33 +33 -0 +57 --------------------------------------------------------------- All data taken from Reuters at 0736 GMT. Currency percent change and yield change calculated from prior domestic close at 1500 GMT.

[PRAGUE/Reuters/Finance.cz]