Bullish mood lifts Czech, Slovak crowns to highs

(adds details, quotes, Slovak crown record)

By Marek Petrus

PRAGUE, Nov 6 (Reuters) - The Czech and Slovak crowns firmed to record highs against the euro on Monday as expectations of a mild slowdown and and end to rate hikes in the United States reinforced a bullish mood on central European currency markets.

Slovakia and the Czech Republic have been the two fastest-growing economies among the four newest EU members in central Europe, expanding at an annual 6.7 percent and 6.2 percent respectively in the second quater.

But analysts said the latest currency rally reflected growing global investor interest to take on risk in emerging markets offering greater potential for gains rather than the two economies robust growth.

The Czech crown hit a high as 27.920 per euro <0#EURCZK=> before stabilising to 27.935 by 1030 GMT, breaching a previous record of 27.950 posted in mid-August.

The Slovak crown climbed to a record 36.150 to the euro <0#EURSKK=>, above a previous 36.250 hit on Oct. 27. It later cooled off to trade at 36.185.

"The entire region is in a "sell-euro" mood," said one Bratislava-based foreign bank trader.

Central European currencies have benefited from U.S. data pointing to a gentle slowdown in the world's biggest economy rather than a rapid slump that could undermine emerging market economies, many of which are heavily reliant on exports.

The growing market expectations that no more Federal Reserve interest rate hikes will eat into the rate premium on high-yield emerging markets currencies have spurred investor appetite for increasing exposure to these riskier markets.

'GLOBAL PHENOMENON'

"It's a global phenomenon, not something specific to the Czech and Slovak crowns," Nigel Rendell, emerging markets strategist at Calyon in London.

"The risk premium is diminishing ... as U.S. rates have peaked and euro zone rates are predictable and in such an environment central Europe looks very positive," he said.

The Slovak currency has been at or near record highs for most of the past month, driven by the approval of the 2007 state budget -- which kept euro adoption in 2009 on track -- rating upgrades and a bullish sentiment on emerging markets.

However, the Czech crown ignored the rally in neighbouring markets for most of October, held back by political instability and low interest rates which are a record 75 basis points below the euro zone.

Analysts said the crown regained appeal thanks to the prospect of central bank hikes from current level of 2.50 percent and solid economic data, including the biggest-ever trade surplus for the month of September posted on Friday.

"But it's difficult to be agressively bullish on the zloty and the Czech crown as they have low interest rates plus political and fiscal uncertainty," said Calyon's Rendell.

"But Slovakia is looking good and the rally there can probably run a bit further." -- Additional reporting by Sujata Rao in London and Martin Santa in Bratislava ((Editing by Ian Jones; Reuters Messaging: rm://marek.petrus.reuters.com@reuters.net; e-mail: prague.newsroom@reuters.com or marek.petrus@reuters.com; Tel: +420 224 190 477))

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Keywords: MARKETS CZECH CROWN