Czech crown flat after cbank chief's FX comment

...record highs in past weeks was on the verge of being "totally crazy".

The crown traded little changed on the day at 27.921 per euro by 1523 GMT, following a mild retreat from an intraday high of 27.875, a level not far off an all-time high of 27.820 reached on Nov. 30.

The crown underperformed European emerging market currencies which were mostly firmer as strong U.S. jobs data late last week reassured investors that the world's largest economy would avoid a sharp downturn [EMRG/FRX].

Tuma told Reuters in an interview he could imagine a certain weakening in the crown after it nearly went "totally crazy" over the past few weeks, when it extended its annual gains to 4 percent against the euro and 15 percent to the dollar.

He said the central bank was poised to continue tightening policy next year to keep inflation under wraps, but interest rates may rise somewhat less or later than previously thought [ID:nL11602090].

"These are very dovish signals from the CNB (Czech National Bank), and they clearly support our view that the recent gains in the crown are not sustainable," Lars Christensen, central European economist at Danske Bank in Copenhagen, said in a report to clients.

The crown has gained 1.4 percent versus the bank's inflation forecast drawn up in October which used a 28.3 per euro rate as the initial assumption.

"With the key interest rate expected to remain below that of Euroland and a central bank that wants a weaker crown, we feel confident in continuing to recommend using the crown as a funding currency," added Christensen.

Czech policy interest rates are a record 100 basis points below the euro zone benchmark, which has increased the lure of the crown as a funding currency for emerging market investment.

Investors like to borrow in the crown to invest the proceeds in other central European assets offering a yield premium, such as the Slovak crown or the Hungarian forint.

For news reports on Tuma's interview, double click on the codes in brackets [ID:nL11602090], [ID:nL11609351] and [ID:nL11611710].

----------------- MARKET SNAPSHOT AT 1523 GMT ----------------- Crown/euro last deals at 27.921 (+0.05 pct) Crown/dollar at 21.140 bid (-0.83 pct)

5-year yield due Oct 2010 3.34 pct bid 10-year yield due Jan 2016 3.64 pct bid

5-yr CZK/EUR mid yield spread -41 bps 10-yr CZK/EUR mid yield spread -10 bps

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

[PRAGUE/Reuters/Finance.cz]