Czech crown recovers from 5-mth lows,outlook mixed

...use current weakness to place bets on a gradual recovery this year.

In morning trade, the crown slid as low as 28.469 per euro, a level unseen since late September 2006, due to a high yield gap and rising investor aversion about pouring money into emerging markets amid concern over Iran's nuclear programme and high oil prices.

But it later bounced back to stand 0.1 percent firmer on the session at 28.390 per euro by 1542 GMT.

"We saw some intraday profit-taking on short crown positions and the euro/crown slipped below 28.400 but I believe it would be too early to say the market has turned around and is heading back towards 28.0," said one Prague dealer with a major bank.

The Czech crown has lost 3.5 percent since hitting an all-time high of 27.410 in late December last year.

The low cost of money -- with the 2.50 percent official rate the lowest in the European Union -- has led many investors to prefer to sell the crown for higher-yielding emerging market assets, with the goal of capturing the interest rate spread.

But some analysts said the robust economy should help the crown regain ground later this year, albeit its advance would likely lag last year's 6 percent rally against the euro.

"The expected balance of payments flows and a weakening in the U.S. dollar will work in favour of a firmer crown," said David Navratil, analyst at Ceska Sporitelna, who sees the crown hitting new record highs of 27 per euro within a year from now.

----------------- MARKET SNAPSHOT AT 1542 GMT -----------------

Crown/euro last deals at 28.390 (+0.12 pct) Crown/dollar at 21.437 bid (+0.64 pct)

5-year yield due Oct 2010 3.23 pct bid 10-year yield due Jan 2016 3.70 pct bid

5-yr CZK/EUR mid yield spread -73 bps 10-yr CZK/EUR mid yield spread -28 bps

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

[PRAGUE/Reuters/Finance.cz]