Czech crown holds firm, aided by carry trade unwind

...the currency helped it resist a global emerging markets sell-off sparked by tumbling stock markets.

The crown traded at 28.160 per euro by 0940 GMT.

"The resilience of both the Slovak and Czech crowns underline their relative protection from bourses' woes as foreign investors remain in comparison underinvested given the shallowness of stock markets," BNP Paribas said in a report.

"Moreover, the carry trade unwinding is benefiting the low yielding Czech currency," BNP analysts added.

The Prague bourse fell 1.6 percent on Monday morning, but still outperformed stock markets in neighbouring Poland and Hungary.

Investors reversing selling crown positions -- used to buy high-yield assets with the goal of capturing the interest rate spread -- have helped lift the crown 0.9 percent from a 5-month low seen early last week before the global market turmoil began.

Over the past weeks and months, many players had been taking advantage of low Czech rates -- at 2.50 percent the lowest in the European Union -- to sell the crown for riskier assets in other emerging markets.

The Japanese yen, the world's most popular funding currency, has rallied against major currencies, which has stoked investor nervousness and exacerbated a pull-back from riskier assets that drove Asian stock markets more than 2 percent lower on Monday.

----------------- MARKET SNAPSHOT AT 0940 GMT ----------------- Crown/euro last deals at 28.160 (+0.02 pct) Crown/dollar at 21.424 bid (-0.41 pct)

5-year yield due Oct 2010 3.26 pct bid (flat) 10-year yield due Jan 2016 3.71 pct bid (-1 bps)

5-yr CZK/EUR mid yield spread -59 bps (vs -62) 10-yr CZK/EUR mid yield spread -18 bps (vs -21)

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