Czech crown ticks up from 1-wk lows, seen in range

...discount versus the euro zone would hold the currency in check.

The crown was up 0.1 percent to 28.250 per euro by 0911 GMT, having slid as low as 28.300 overnight on a growing market belief that a hawkish European Central Bank will raise euro zone interest rates in March and boost the Czech yield discount.

The key Czech rate of 2.50 percent is a record 100 basis points below the ECB's equivalent and markets expect the euro zone rate to 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, mostly emerging markets assets, with the goal of capturing the interest rate spread.

Analysts said a drop through 28.300 might open the room for a further crown slide towards 28.400, but a bullish outlook for economic growth of about 6 percent for 2006 and 5 percent for 2007 [ID:nL08301506] was likely to limit any drop in the crown.

"Still robust fundamentals -- strong growth, productivity gains, balance of payments -- should also prevent the crown from outright weakness," Commerzbank analysts said in a report.

"Barring a significant shift in market sentiment, range trading is expected to continue in the days ahead," they added.

Czech markets have discounted interest rate stability until at least the summer before a possible quarter percentage point rate rise by the central bank following 75 basis points' worth of tightening between October 2005 and September 2006.

----------------- MARKET SNAPSHOT AT 0911 GMT -----------------

Crown/euro last deals at 28.250 (+0.09 pct) Crown/dollar at 21.689 bid (-0.12 pct)

5-year yield due Oct 2010 3.32 pct bid (flat) 10-year yield due Jan 2016 3.79 pct bid (flat)

5-yr CZK/EUR mid yield spread -71 bps (vs -69) 10-yr CZK/EUR mid yield spread -29 bps (vs -26)

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

[PRAGUE/Reuters/Finance.cz]