Czech crown hemmed in narrow range, lags region

...modestly firming tone of its central European peers.

At 1500 GMT the crown was flat from Thursday's close at 28.265 per euro .

Next week, the only piece of data due for release is the January producer price index on Wednesday , which led analysts to predict the crown would look for direction from the dollar's moves and its impact on regional markets.

The Czech currency has shed half a percent since the end of January, underperforming the Polish zloty which fell less, as well as the Slovak crown and the Hungarian forint , which both gained more than 1 percent.

Many analysts say the odds are strongly against the crown repeating its 6 percent rise against the euro from last year when it became the world's fourth best performing currency.

A Reuters poll published on Thursday found expectations have shifted in favour of a weaker crown, giving a median forecast of 28.10 to the euro in both one month and three months .

Low Czech rates, at 2.50 percent a record 1 percentage point below euro zone equivalents, have led many investors to prefer to sell the crown for higher-yielding emerging markets assets, with the goal of capturing the interest rate spread.

An unexpected drop in January inflation to a near 2-year trough of 1.3 percent hurt the crown, reducing the odds on any interest rate hike before the second half of the year and even prompting tentative market talk about the chance of a rate cut.

A widely-forecast rise in benchmark European Central Bank (ECB) rates to 3.75 percent in March [ECB/INT] is set to deepen the crown's yield disadvantage.

Analysts at Commerzbank recommended investors buy euros for crowns as long as a 27.97 level holds, looking for the crown's weakening towards 28.60.

"With the market currently pricing in ECB rates of 4.0 percent by mid-year, the rate differential would widen to a record of 150 basis points in the months ahead, even without a CNB cut," Commerzbank analyst Carsten Fritsch said in a report.

----------------- MARKET SNAPSHOT AT 1500 GMT ----------------- Crown/euro last deals at 28.265 (flat) Crown/dollar at 21.528 bid (-0.18 pct)

5-year yield due Oct 2010 3.21 pct bid (-1 bps) 10-year yield due Jan 2016 3.72 pct bid (-1 bps)

5-yr CZK/EUR mid yield spread -80 bps (vs -78) 10-yr CZK/EUR mid yield spread -32 bps (vs -32)

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

[PRAGUE/Reuters/Finance.cz]