Czech crown hits record highs on dollar weakness

PRAGUE, Dec 1 (Reuters) - The Czech crown firmed to a new lifetime high against the euro in overnight trade and opened within sight of the new record level on Friday, as the weakness in the U.S. dollar sparked crown buying.

The crown rose as high as 27.820 to the euro overnight, beyond the previous peak of 27.875 seen on Nov. 6. It opened slightly lower and traded at 27.890 per euro <0#EURCZK=> by 0750 GMT, about a quarter percent stronger from Thursday's close.

The crown broke through the 21 level to the dollar overnight to reach new all-time highs around 20.95 for the U.S. currency <CZK=>, which traders said triggered into a knock-on buying of crowns for euros by investors covering their open positions.

"A break through 21 per dollar overnight sparked stop-loss selling in the dollar for crowns, which spilled over into crown buying for euros," said Miroslav Tutter, senior currency dealer at CSOB bank in Prague.

"We could re-test the new highs for the crown to the euro soon if the dollar remains under pressure," he added.

The rally over the past few weeks, driven by inflows into emerging markets on a benign view of the global economy, has extended the Czech currency's year-to-date gains to 4.5 percent to the euro and 17 percent to the dollar.

The dollar has fallen broadly on global markets <EUR=>, suffering from expectations that a weakening economy will prompt the Federal Reserve to cut interest rates next year.

Meanwhile, the crown has drawn support from the healthy domestic economy, whose expansion is forecast to have slowed in the third quarter to a trend rate of some 5 percent annually. Third-quarter growth data are due for release next week.

"On disappointing data next week, the crown may slip back towards 28.20, but in the wake of continued positive sentiment towards the region and strong fundamentals, the crown is likely to remain supported," Commerzbank analysts said in a report.

Investors do not seem deterred by the prospect of the gap between official Czech rates, kept on hold at 2.50 percent on Thursday, and euro zone equivalents widening to a full percentage point following an expected ECB interest rate hike.

Markets are confident the European Central Bank will raise its rates 3.50 percent on Dec. 7.

----------------- MARKET SNAPSHOT AT 0749 GMT ----------------- Crown/euro <EURCZK=> last deals at 27.890 (+0.25 pct) Crown/dollar <CZK=> at 21.011 bid (+0.41 pct)

5-year yield due Oct 2010 <CZ5YT=RR> 3.36 pct bid (-12 bps) 10-year yield due Jan 2016 <CZ10YT=RR> 3.66 pct bid (0 bps)

5-yr CZK/EUR mid yield spread <DE114147=> -31 bps (vs -19) 10-yr CZK/EUR mid yield spread <DE113529=> -2 bps (vs -2)

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

((Reporting by Marek Petrus; Editing by xxx; 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 OPEN