Czech crown slips vs euro, awaits ECB rate hints

...a March interest rate rise that would increase the crown's yield disadvantage.

The crown shed 0.1 percent to 28.210 per euro by 0945 GMT, hugging a familiar range of between 28.050 and 28.250.

Other central European currencies were also flat to slightly weaker before the ECB rate announcement at 1245 GMT. A news conference is due to follow at 1330 GMT.

The key Czech rate of 2.50 percent is a record 100 basis points below the ECB equivalent, which analysts widely expect to stay at 3.5 percent on Thursday and rise to 3.75 percent in March .

Low Czech rates have inspired investors to sell the low-yielding crown to fund investment in higher-yielding, emerging markets assets, with the goal of capturing the interest rate spread.

"The ECB looks likely to signal the March rate hike, which will pressure already negative rate differentials versus the crown, and help to maintain the crown's funder status," said Lucy Bethell, strategist at Royal Bank of Scotland in London.

"That funding status helps to explain the crown's underperformance this week, but shouldn't prevent (euro/crown) losses toward 28.00 if regional sentiment stays strong as we expect," she said in a note to investors.

Czech markets expect interest rate stability until at least the summer before a possible quarter point rate hike by the central bank (CNB), following 75 basis points worth of tightening between October 2005 and September 2006.

----------------- MARKET SNAPSHOT AT 0945 GMT ----------------- Crown/euro last deals at 28.210 (-0.14 pct) Crown/dollar at 21.717 bid (-0.38 pct)

5-year yield due Oct 2010 3.31 pct bid (+4 bps) 10-year yield due Jan 2016 3.76 pct bid (+2 bps)

5-yr CZK/EUR mid yield spread -68 bps (vs -72) 10-yr CZK/EUR mid yield spread -27 bps (vs -29)

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

[PRAGUE/Reuters/Finance.cz]