Czech crown extends drop from 7-1/2 mth high

...prompted investors to put on carry trade positions.

The crown shed half a percent from the previous domestic close to trade at 27.686 per euro by 1250 GMT. On Thursday, the crown posted its biggest daily jump versus the euro in more than 2-1/2 years.

"It is about finding courage. A lot of people have been waiting to re-enter carry trades out of the crown from attractive levels after positions were washed out," said one Prague dealer with an international bank.

"These trades still make sense," he said.

The U.S. Federal Reserve cut the discount rate by a half point, saying the downside risks to growth had increased "appreciably", a surprise move aimed at calming jittery global markets. [nN17410298]

The Prague bourse rebounded from five-month lows, with the main index reversing an earlier 2.4 percent drop to gain 2.2 percent by 1250 GMT. Emerging market stocks erased most of their falls .

Global equity market sell-offs amid growing distress in the credit markets led investors to pare or close mostly risky bets in high-yield assets financed by borrowing in low-yield currencies, sending the crown up 1.1 percent over a week ago.

[PRAGUE/Reuters/Finance.cz]