Czech crown retreats to 10-day low on weak region

...fragile amid uncertainty over future U.S. monetary policy.

The crown slid to a 10-day low of 27.725 per euro and traded at 27.700 at 0900 GMT, nearing the 27.75 euro resistance level and moving further away from an all-time high of 27.410 hit on Dec. 20 and matched on Tuesday.

Many analysts were puzzled by the currency's rally in late 2006 and cautioned that a deteriorating external deficit and a record 100-basis-point interest rate discount versus the euro zone spoke in favour of a weaker currency in the near-term.

Weakness in the Polish zloty also weighed on the crown and other central European currencies. The zloty has lost nearly 2 percent because of uncertainty surrounding a new nominee for central bank governor.

"In emerging Europe, the nomination of the new National Bank president in Poland has added to the correction seen across emerging markets," analysts at BNP Paribas said in a report.

"The Slovak crown, along with the low-yielding Czech crown, also suffered a correction which indicates that the correction has spilled over to all emerging markets, including low yielding currencies."

With the risk-seeking environment still seen as broadly intact, investors are hoping non-farm payrolls data on Friday will shed light on future U.S. Federal Reserve policy.

"Our bias remains that the G3 -- euro zone, U.S. and Japan -- constellation of low core inflation/soft landing will ultimately work to support a re-establishment of risk taking," Martin Blum, head of emerging markets research at CA IB, said in a report to investors.

The median forecast in a Reuters poll was for the payrolls to show a gain of 100,000 jobs in December after a 132,000 rise in November. The numbers are due out at 1330 GMT.

----------------- MARKET SNAPSHOT AT 0857 GMT ----------------- Crown/euro last deals at 27.700 (-0.14 pct) Crown/dollar at 21.156 bid (-0.17 pct)

5-year yield due Oct 2010 3.29 pct bid (-9 bps) 10-year yield due Jan 2016 3.70 pct bid (-1 bps)

5-yr CZK/EUR mid yield spread -61 bps (vs -53) 10-yr CZK/EUR mid yield spread -23 bps (vs -23)

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

[PRAGUE/Reuters/Finance.cz]