Emerging FX-Around flat before c.Europe rate meetings

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Central European currencies seesawed either side of flat on Friday, lacking momentum to move higher before next week's monetary policy meetings that analysts predict will strike a hawkish tone although rates will hold steady.

South Africa's rand and Turkey's lira also stayed in ranges versus the dollar after this week's rally that took them to the highest levels in seven weeks and nine months respectively.

Analysts say emerging markets are enjoying a generally benign backdrop as the yen, the main funding currency, remains weak and the U.S. economy is seen heading for a soft landing.

Yet most currencies seem reluctant to firm from current levels and traders say rallies versus the euro in central Europe tend to be short-lived. They are now keen to hear what central banks in the region say when they meet next week on rates.

Hungary's central bank meets on Monday, Slovakia's on Tuesday, Poland on Wednesday and the Czech National Bank on Thursday.

"I'd say the currencies look well bid and the FX and macro environment remain positive. There is limited and isolated weakness in the forint and that is possibly due to the fact we had weak retail sales numbers this morning," said Olivier Desbarres, currency strategist at Credit Suisse in London.

He said investors look reluctant to take big positions before the meetings and there is little G7 or local data to provide direction. The currencies did not react to Germany's Ifo survey showing business sentiment was down more than expected.

The zloty was flat at 3.88 per euro , trading near a two-week high as strong growth and wage data recently along with hawkish central banker comments has increased the possibility that rates will increase sooner than expected.

Polish bond yields have risen also, with five-year rates nudging 5 percent, up 0.7 percent since the start of February.

The forint lost a quarter percent to 252.61 per euro, near a week-low after the sales data.

Hungary's outgoing central bank head Zsigmond Jarai is nevertheless expected to sound hawkish as inflation may top 8 percent in the first half of 2007.

"I think Hungarian rates will be unchanged but Jarai will leave a hawkish statement, the Czechs will be neutral to slightly dovish while the Slovaks have not much room to hike or cut," Desbarres said, forecasting Poland will sound marginally more hawkish than in January.

But HSBC analysts predicted 50 basis points of tightening in the near term, in February or March, or both.

"We continue to expect the forint to remain firm and outperform the region in a grind down through 250 per euro and towards 240," they wrote in a note to clients.

The rand, which has rallied over one percent since the start of the week amid a positive carry environment, high gold prices and a broadly market-friendly budget, eased 0.2 percent

Traders said the rand must close above 7.06/7.08 per dollar to attempt a break of 7 but a move above this is not anticipated as the central bank is seen stepping in around those levels

The lira likewise was flat at 1.38 per dollar .

Elsewhere, a recent devaluation scare in Latvia which central Europe investors have been carefully watching, appeared to be subsiding, with the lat still weak but returning towards its parity level in ERM-2 versus the euro .

Prime Minister Aigars Kalvitis has said the central bank has no plans for any devaluation.

Unicredit CA-IB analysts, who had earlier suggested a small long euro position versus the lat in the near term, said: "Things now look to be tentatively calming down, with the government and central bank on a concerted marketing campaign locally, and we'd close euro/lat longs at current levels."

[LONDON/Reuters/Finance.cz]