Czech crown hits peak vs weak dlr, eyes c.bank mtg

...fell broadly and the Czech central bank (CNB) appeared increasingly likely to pause in its policy tightening.

Analysts said the crown had broken its once firm ties to the low-yielding yen as investors focused on robust domestic economic growth, the outlook for rising interest rates and a sound external position with a sizeable foreign trade surplus.

Earlier this year, investors had taken advantage of low Czech credit costs, the lowest in European Union, to sell cheap crowns for higher yielding emerging markets assets. However, a spike in risk aversion amid a global credit crisis has caused liquidation of many of such speculative bets, analysts said.

"The crown has been moving out of step with other regional units as well as other low-yielding currencies and is currently looking for a new benchmark to give it a direction," said Jan Cermak, chief financial market analyst at CSOB bank in Prague.

"The fundamental picture is excellent and the market is waiting to see whether the central bank refrains from hiking interest rates further and strikes a rather moderate note on the policy outlook," he added.

The crown was flat at 27.550 per euro by 1445 GMT, after the central bank's policymaker Vladimir Tomsik appeared to validate widespread market expectations that no rate increase was likely at policymakers' meeting on Thursday.

The crown firmed to a record high of 19.45 to the dollar , which extended losses after weak U.S. data [FRX/].

Tomsik said central bankers had differing views on when rates will need to rise further to contain inflation [ID:nL25488012].

Most analysts polled by Reuters believe the central bank has room to pause in rate-hiking campaign after raising the main rate by 25 basis points to a five-year high of 3.25 percent in August in the third such move in the past four months.

For selection of recent comments by central bank policymakers, click on the following code: [ID:nL25888370]

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

close on day in 2007 vs Euro 27.555 27.560 +0.02 -0.20 vs Dollar 19.485 19.542 +0.30 +6.86

Equities PX Index 1,802.9 1,792.1 +0.60 +13.47

Domestic Govt Bonds Latest Prev Yld change Yld change

close on day in 2007

5Y Yield 4.20 4.23 -4 bps +96 bps 10Y Yield 4.48 4.55 -6 bps +83 bps

Mid Yield Spreads (in bps) Spd change Spd change

on day in 2007

5Y vs +2 +0 -0 +66 10Y vs +15 +19 -4 +39 --------------------------------------------------------------- All data taken from Reuters at 1444 GMT. Currency percent change and yield change calculated from prior domestic close at 1500 GMT.