Czech crown near 1-month highs, eyes ECB decision

PRAGUE, Oct 5 (Reuters) - The Czech crown edged higher to approach one-month highs versus the euro on Thursday as buoyant investor sentiment towards emerging markets outweighed concerns about a widening interest rate gap against the euro zone.

The crown gained 0.2 percent to 28.205 per euro <0#EURCZK=> by 0745 GMT, nearing a one-month high of 28.181 seen on Tuesday.

The European Central Bank (ECB) is expected to raise rates to 3.25 percent on Thursday, re-instating a record 75 basis point discount to the Czech policy rate which the central bank raised by quarter of a percentage point to 2.50 percent last week.

Investors are keenly awaiting comments from ECB President Jean-Claude Trichet for his signals on future credit tightening. For details, see [ID:nL0253012]. The ECB decision is at 1145 GMT, with Trichet's news conference slated for 1230 GMT.

"Under normal circumstances, central European markets and the crown would probably be under pressure before an expected ECB rate increase, but the current bullish mood on emerging markets could more than compensate for this factor," analysts at CSOB bank in Prague said in a report.

They said the crown's advance faced a key technical barrier at around 28.180 per euro.

Longer-dated local currency government bond yields <0#CZBMK=> ticked higher, partly after a projected 41 percent jump in net government bond issuance next year stocked concerns over the market's ability to gobble up the rising debt supply.

The government's draft 2007 budget showed on Wednesday that up to 118.5 billion crowns ($5.33 billion) worth of new medium- and long-dated domestic bonds could be issued next year, up from this year's expected 84 billion crowns.

"Net issuance at 118.5 billion would be an all-time high and could test the local market's absorption capacity," said Pavel Sobisek, chief economist at HVB Bank in Prague. "We found the news fixed income bearish."

----------------- MARKET SNAPSHOT AT 0801 GMT ----------------- Crown/euro <EURCZK=> last deals at 28.205 (+0.20 pct) Crown/dollar <CZK=> at 22.172 bid (+0.39 pct)

5-year yield due Oct 2010 <CZ5YT=RR> 3.64 pct bid (-4 bps) 10-year yield due Jan 2016 <CZ10YT=RR> 3.84 pct bid (flat)

5-yr CZK/EUR mid yield spread <DE114147=> 0 bps (vs 5) 10-yr CZK/EUR mid yield spread <DE113529=> 14 bps (vs 15)

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 MORNING