* Latvia hopes boost sentiment, forint leads
* Hungary cbanker, PM look for lasting sentiment change
* CEE slides into recession []
(Adds new comments and updated prices)
By Jason Hovet and Sandor Peto
PRAGUE/BUDAPEST, June 9 (Reuters) - The Hungarian forint
rose to a one-week high on Tuesday, leading central European
currencies after news Latvia was close to agreeing budget cuts
that could get it more IMF funds boosted sentiment.
Hungarian Prime Minister Gordon Bajnai said the country may
not need to spend all of its own IMF loans secured last October,
and may return to market financing if the improvement in the
global market sentiment is lasting. []
Central Europe has been on shaky ground in the past week
because of worries Latvia would need to devalue its currency to
fight a steep economic slide, and investors are nervous about
fallout for other emerging markets in the region.
But in Latvia, leaders agreed late on Monday to cut around
500 million lats ($987.6 million) in public spending, giving a
boost to central European currencies despite poor Czech and
Hungarian gross domestic product (GDP) readings. []
"Partly it's spillover from the Baltic region... (Latvian
developments) have a positive impact on currencies," one
Stockholm-based currency dealer said. "Also the dollar is coming
lower (to the euro), which means less risk aversion."
The forint <EURHUF=> jumped two percent to 280.15 to the
euro by 1329 GMT, extending gains after Hungarian central banker
Ferenc Karvalits said rate cuts cannot start until more evidence
the positive tone in markets is lasting. []
Bajnai's words also helped the forint and Hungarian
government bonds, while long euro positions opened last week
were closed and some players sold the zloty for the forint
<HUFPLN=>.
"There is talk that there are zloty sales for forints as
interest rates in Hungary are higher," one dealer said.
The zloty <EURPLN=> added one percent, firming to 4.478.
"Sentiment is good and if Latvia avoids devaluation there's
a chance the Polish unit may strengthen further," said one
Warsaw-based dealer.
The Czech crown <EURCZK=> rose to 26.735 per euro, 0.6
percent up, and Romania's leu <EURRON=> was flat at 4.198.
"The region is rallying on Latvia proxy trade," one
Bucharest-based dealer said. "But Romania still has a current
account deficit, which means there is strong local demand for
euros, so the leu doesn't really join the rally."
ECONOMIES, RATES UNDER SCRUTINY
The Romanian central bank is expected to cut interest rates
on June 30 after analysts grew more pessimistic about the depth
of this year's recession.[]
Data from Romania, Hungary and the Czech Republic on Tuesday
confirmed that collapsing industry and trade across the region
pushed economies deep into recession[].
While assets in the European Union's emerging markets remain
mainly dependent on the global market mood, concerns over the
economies and possible central bank interest rate cuts will keep
the region's currency and bond recovery fragile, dealers said.
"The concerns over Latvia have subsided... but I don't think
that the (asset price) rises will continue for a long time," one
Budapest-based fixed income trader said.
The currencies, which fell last week, have gained around 10
percent in a rocky climb up during a months-long emerging risk
rally started after February and March lows, but, led by the
zloty, are down up to 25 percent in the past year.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.735 26.888 +0.57% +0.07%
Polish zloty <EURPLN=> 4.478 4.523 +1% -8.11%
Hungarian forint <EURHUF=> 280.15 285.75 +2% -5.93%
Croatian kuna <EURHRK=> 7.302 7.312 +0.14% +0.86%
Romanian leu <EURRON=> 4.198 4.199 +0.02% -4.37%
Serbian dinar <EURRSD=> 93.546 93.816 +0.29% -4.35%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -24 basis points to 94bps over bmk*
4-yr T-bond CZ4YT=RR -1 basis points to +138bps over bmk*
8-yr T-bond CZ8YT=RR +14 basis points to +254bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +5 basis points to +373bps over bmk*
5-yr T-bond PL5YT=RR +2 basis points to +297bps over bmk*
10-yr T-bond PL10YT=RR +1 basis points to +260bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -19 basis points to +825bps over bmk*
5-yr T-bond HU5YT=RR -56 basis points to +749bps over bmk*
10-yr T-bond HU10YT=RR -45 basis points to +663bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1529 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Jason Hovet and
Sandor Peto; Editing by Stephen Nisbet)
