Czech crown flat, bond mkt unwinds rate hike bets

PRAGUE, Oct 19 (Reuters) - The Czech crown held largely steady versus the euro in morning trade on Thursday, holding ground after a recovery from the previous session's three-week lows and watching global markets for direction.

The crown traded at 28.330 per euro <0#EURCZK=> by 0851 GMT, following a rise from Wednesday's low of 28.395 after U.S. inflation data offered some support to emerging market assets.

Government debt yields and money market rates extended a fall sparked by Wednesday's dovish comments by central bank (CNB) policymaker Jan Frait, which market saw as lowering the chances of an interest rate increase before the year-end.

No economic data were due out on Thursday, and the market has ignored domestic politics, as political parties and President Vaclav Klaus continue talks on finding a way out of a four-month-old parliamentary stalemate.

Traders in global currency markets have focused on the Philadelphia Fed's index of manufacturing activity <USPFDB=ECI>, due at 6 p.m. (1600 GMT), which some analysts said might change investor sentiment towards emerging markets.

"We will be extremely attentive to the Philly Fed reading this afternoon which a month ago had triggered a sharp sell-off in emerging markets," analysts at BNP Paribas said in a report.

In the domestic bond market, short-dated yields fell as much as 7 basis points <0#CZBMK=> and forward money-market rates <CZKFRA> shed up to 6 points. The market has cut the chances of a possible November interest rate hike to less than 50 percent, according to Reuters calculations.

Debt yields and money market rates began falling after CNB board member Frait told Reuters that benign inflationary pressures should allow CNB to adopt a cautious approach to a further tightening of monetary policy.

- For full news report on the interview, see [ID:nL1856741].

----------------- MARKET SNAPSHOT AT 0851 GMT ----------------- Crown/euro <EURCZK=> last deals at 28.332 (-0.04 pct) Crown/dollar <CZK=> at 22.549 bid (+0.32 pct)

5-year yield due Oct 2010 <CZ5YT=RR> 3.62 pct bid (-6 bps) 10-year yield due Jan 2016 <CZ10YT=RR> 3.82 pct bid (-1 bps)

5-yr CZK/EUR mid yield spread <DE114147=> -12 bps (vs -5) 10-yr CZK/EUR mid yield spread <DE113529=> 1 bps (vs 2)

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

((Reporting by Marek Petrus; prague.newsroom@reuters.com; Reuters Messaging: marek.petrus.reuters.com@reuters.net; +420 224 190 477))

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Keywords: MARKETS CZECH CROWN OPEN