UPDATE 1-Czech Aug c/a gap at 3-yr high on profit outflow

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By Marek Petrus

The Czech current account deficit grew well above market forecasts to reach a 3-year high in August as strong economic growth fuelled record profit repatriation outflows.

The monthly shortfall widened to 32.7 billion crowns ($1.69 billion) from 8.8 billion a month earlier and 9.4 billion in August 2006, according to central bank data published on Monday.

The figure exceeded all analysts' forecasts ranging from shortfalls of 3.5 billion to 14.6 billion in a Reuters poll.

Companies usually pay dividends over the summer, with foreign investors at local companies funnelling a rising share of investment income abroad.

"The economy is growing at a fast pace and at the same time investment opportunities are slowly drying up and the labour market is tightening," said Jan Vejmelek, head of economic and strategy research at Komercni Banka. "Foreign investors thus transfer their local incomes abroad on a larger scale."

The Czech economy is growing at about a 6 percent rate for a third year running.

The data sparked temporary selling of the crown, knocking it to an intraday low of 27.544 against the euro from 27.515 just before the release. By 0950 GMT, the crown had clawed its way back to 27.510 per euro .

CROWN VULNERABLE

The income balance deficit -- part of the current account tracking profit repatriation by foreign firms and profits they reinvest in the Czech Republic -- jumped to 37.4 billion crowns, more than triple the level a year earlier.

"The current account deficits were below expectations in June and July due to lower dividends. Therefore the August figure was influenced by the postponed dividends," said David Navratil, economist at Ceska Sporitelna.

The August income balance shortfall was the biggest since the data series began in 2003, according to Reuters data.

The financial account, which tracks all cross-border flows, showed a huge 63 billion crown inflow, which analysts attributed to an unwinding of carry trades funded out of the low-yielding Czech crown after a rise in risk aversion globally.

A closing of risky trades looking to profit from investing in higher yielding emerging markets such as Turkey propelled the crown to a lifetime high of 27.385 per euro last month as investors bought crowns they had sold to fund such strategies.

"While the unwinding of crown shorts is coming to an end, profit repatriation is likely to continue -- something that leaves the crown vulnerable in the remainder of 2007 in our view," said Pavel Sobisek, economist at UniCredit Markets & Investment Banking.

FOR INSTANT VIEW OF AUGUST DATA, CLICK ON [ID:nL15228810]

($1=19.34 Czech Crown)

Keywords: CZECH BALANCE/

[PRAGUE/Reuters/Finance.cz]