RPT-Czech crown slips on emerging mkt sell-off, zloty

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The Czech crown shed more than half a percent versus the euro on Thursday, as a stronger U.S. dollar and fresh concerns over the U.S. growth outlook sparked a bout of selling in emerging markets.

The crown slid as low as 27.665 per euro before stabilising. It was at 27.663 at 1525 GMT, down from 27.495 at the previous domestic close and further off an all-time high of 27.410 hit on Dec. 20 and matched in late activity on Tuesday.

Other central European currencies also handed back some recent gains after Federal Reserve meeting minutes raised U.S. growth concerns and sparked jitters about any impact U.S. slowdown could have on mostly export-driven emerging economies.

The Polish zloty lost about one percent against the euro, also hit by the government's announcement of its candidate for central bank chief, which was poorly received in the market [ID:nL04418905].

Jan Vejmelek, analyst at Komercni Banka in Prague, said the crown may extend its losses to the 27.75 euro resistance level.

Central bank Governor Zdenek Tuma has said it is difficult to find economic reasons for a further crown firming, citing a yawning interest rate gap versus the euro zone, a deepening external deficit and seven-month-long political vacuum.

Minutes from the central bank's Dec. 20 policy meeting showed on Wednesday policymakers agreed the crown posed a "considerable downside risk" to inflation which now looked likely to be slower than the bank had forecast.

The crown's strength and central bank comments have led markets to expect stable interest rates for the next several months, following 75 basis points worth of hikes by the central bank between October 2005 and September 2006.

"If there is no upward correction of EUR/CZK, we may not see a repo rate hike until the second half of 2007, regardless of any ECB (European Central Bank) potential rate moves," said Pavel Sobisek, economist at the Czech unit of UniCredit.

A Reuters poll showed on Thursday that another ECB interest rate rise in February or March looks a done deal. The key Czech rate is 2.50 percent, and an quarter point ECB hike would boost the gap between Czech and higher euro zone rates to 125 basis points.

----------------- MARKET SNAPSHOT AT 1523 GMT ----------------- Crown/euro last deals at 27.662 (-0.60 pct) Crown/dollar at 21.080 bid (-1.42 pct)

5-year yield due Oct 2010 3.28 pct bid (-1 bps) 10-year yield due Jan 2016 3.70 pct bid (flat)

5-yr CZK/EUR mid yield spread -64 bps (vs -64) 10-yr CZK/EUR mid yield spread -24 bps (vs -25)

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

[PRAGUE/Reuters/Finance.cz]