Czech CZK loses ground, tests weaker side of range

...weaker side of its recent range.

The crown stood at 28.355 to the euro at 1603 GMT, 0.4 percent down on the day.

The central bank is expected to leave interest rates flat next week, raising the chances that a record 100 basis point discount versus euro zone rates will grow further if the European Central Bank hikes by 25 basis points as expected on March 8.

"We still are giving a chance to the crown leaving its corridor (28.05-28.35) as the result of depreciation pressure, however it is impossible to say if it will happen as soon as next week," Komercni Banka said in a report.

"The negative interest rate differential will deepen to 125 basis points after the expected ECB hike in March; on the top of that, we expect very dovish commentary from the CNB (Czech central bank) after board meeting next week," it said.

The low Czech cost of money has led many investors to sell the crown for higher-yielding emerging markets assets, with the goal of capturing the interest rate spread.

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.

----------------- MARKET SNAPSHOT AT 1603 GMT ----------------- Crown/euro last deals at 28.350 (0.00 pct) Crown/dollar at 21.527 bid (0.01 pct)

5-year yield due Oct 2010 3.29 pct bid (0 bps) 10-year yield due Jan 2016 3.75 pct bid (0 bps)

5-yr CZK/EUR mid yield spread -74 bps (vs -74) 10-yr CZK/EUR mid yield spread -30 bps (vs -30)

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

[PRAGUE/Reuters/Finance.cz]