Czech crown gains as investors unwind carry trades

PRAGUE, Oct 30 (Reuters) - The Czech crown rose to near three-week highs versus the euro on Monday, as investors booked gains on high-yield, high-risk emerging market assets financed out of the low-yielding Czech currency.

The crown gained about third of a percent on the session to trade at 28.260 per euro <0#EURCZK=> by 1555 GMT, outperforming central European peers, which either stagnated or weakened.

"Over the past weeks, investors had taken advantage of the Czech crown as the funding currency because of low interest rates and the limited room for appreciation. There were signs of profit taking on these positions today," said Jan Vejmelek, head of economics and investment research at Komercni Banka.

Analysts and dealers said the crown's advance would probably face resistance at around 28.200 per euro in the near-term, as investors weigh the chances of political parties agreeing to early elections as a way out of a protracted political crisis.

Emerging market investors took profits on higher risk assets ahead of a packed week of U.S. economic data [EMRG/FRX]. Hungary's forint slid around half a percent against the euro <EURHUF=> from Friday's five-month high.

Czech policy interest rates have stood a record 75 basis points below the euro zone benchmark, which -- together with relative exchange rate stability -- has increased the lure of the crown as a funding currency for emerging market investment.

Investors seeking to enter a carry trade borrow in the crown and invest the proceeds in assets offering a yield premium, such as the Hungarian forint.

----------------- MARKET SNAPSHOT AT 1555 GMT ----------------- Crown/euro <EURCZK=> last deals at 28.260 (+0.34 pct)

Crown/dollar <CZK=> at 22.210 bid (+0.27 pct)

5-year yield due Oct 2010 <CZ5YT=RR> 3.70 pct bid (flat) 10-year yield due Jan 2016 <CZ10YT=RR> 3.87 pct bid (-2 bps)

5-yr CZK/EUR mid yield spread <DE114147=> -7 bps (vs -11) 10-yr CZK/EUR mid yield spread <DE113529=> 7 bps (vs 3)

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

((Reporting by Marek Petrus; Editing by Gerrard Raven; 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 CLOSE