Czech crown near record high before c.bank meeting

...interest rates on hold for the third consecutive month at Wednesday's meeting.

The crown traded at 27.671 per euro by 1025 GMT, unchanged from the opening level but off an all-time peak of 27.620 reached in offshore activity on Friday night.

A stronger than expected 8.6 percent annual increase in October retail sales reinforced market expectations that interest rates will likely rise next year to offset potential price pressures, but the CNB need not hurry to tighten policy.

"On an underlying basis retail sales growth is by no means explosive, not a reason for the CNB to turn more hawkish in the near-term," said Martin Blum, economist at Bank Austria Creditanstalt in Vienna.

Czech rates have been the lowest in the European Union and, at 2.50 percent, a full percentage point below the euro zone equivalent, reflecting the strength of the crown, which has effectively tightened credit conditions.

The currency has gained 2 percent versus the CNB's inflation forecast drawn up in October which used 28.3 per euro rate as the initial assumption. It is more than 5 percent firmer since the start of this year.

All 22 economists participating in a Reuters poll last week predicted the seven CNB policymakers would hold the key rate steady on Dec. 20, at their last gathering for the year and the first after this month's appointment of two new policymakers.

But many analysts have been puzzled by last week's rally in the currency and cautioned that a deteriorating external deficit spoke in favour of a weaker currency, or at least a dampening of its prospects for a further advance next year.

----------------- MARKET SNAPSHOT AT 1025 GMT ----------------- Crown/euro last deals at 27.671 (flat) Crown/dollar at 21.121 bid (0.07 pct)

5-year yield due Oct 2010 3.38 pct bid 10-year yield due Jan 2016 3.68 pct bid

5-yr CZK/EUR mid yield spread -44 bps 10-yr CZK/EUR mid yield spread -13 bps

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

[PRAGUE/Reuters/Finance.cz]