* FX reverse gains but hold off lows
* Poland scraps its short-dated bonds, yields unmoved
* Ukrainian problems may affect CEE FX if IMF blocks help
(Updates throughout)
PRAGUE/WARSAW, Oct 30 (Reuters) - Hungary's forint led a
retreat in central European currencies on Friday, but the
Romanian leu bucked the trend as dealers cited central bank
intervention.
Currencies had recovered from sharp falls on Thursday after
data showed the U.S. economy may have exited recession, putting
a positive light on prospects for central Europe which is still
struggling with widening budget shortfalls and sluggish growth.
Strategists have said interest rate outlooks would also
start to hold back some currencies like the forint and leu due
to rate cut expectations, but say a half-year rally for emerging
Europe was probably not at an end despite hiccups this week.
"Carry compression in the region will continue... If
investors are looking for carry, central and eastern Europe is
clearly not the region to look at," said Murat Toprak,
strategist at Societe Generale in London.
But he said price moves could remain erratic and the zloty
was the top pick especially as the Polish central bank has
shifted to a neutral stance on rates and the unit has lagged the
region in recouping losses over the past year.
At 1516 GMT the forint <EURHUF=> was 0.9 percent down to the
euro, while Poland's zloty <EURPLN=> and the Czech crown
<EURCZK=> fell both around 0.5 percent respectively.
In Romania prolonged political wrangling to form a new
government coupled with intervention fear has paralysed the
currency this month, although it was jolted this week in a
regional sell-off.
The leu <EURRON=> was relatively stable in the afternoon
after falling below the key 4.3 level that dealers say the
central bank has acted to protect, and did so again on Friday.
[]
RATES, IMF IN FOCUS
Markets also expect Romania's central bank to lop another 50
basis points off interest rates when it meets on Tuesday. The
Czech central bank is likely to hold pat on rates, although many
in the market have bet rates could go down from an already
record low of 1.25 percent. []
Romania and Hungary have both reached out for International
Monetary Fund aid. Dealers also said political deadlock and
economic troubles in Ukraine may also hang on the region's
currencies if IMF blocks its next aid tranche.
On Friday Ukrainian President Viktor Yushchenko signed a
bill that would increase the minimum wage by over 20 percent --
a move IMF chief Dominique Strauss-Kahn said placed its bailout
"off-track". []
"The wage bill is just another angle of a political battle
in Ukraine but it may pose a threat if the IMF refuses to pay
its help," said Lukasz Wojtkowiak, FX strategist at Millennium
bank.
On debt markets, Polish bond yields held stable after the
finance ministry said it would scrap treasury bills supplies in
November due to a healthy reserves level. []
"We may expect a longer-dated bonds to strengthen further as
the ministry will not offer them next month," said one
Warsaw-based dealer.
Elsewhere, the Hungarian bond yields fell but dealers said
uncertainty on the market remained and sentiment on the debt
market depends on moves on the currency.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.416 26.277 -0.53% +1.28%
Polish zloty <EURPLN=> 4.248 4.227 -0.49% -3.13%
Hungarian forint <EURHUF=> 273.9 271.55 -0.86% -3.78%
Croatian kuna <EURHRK=> 7.225 7.225 0% +1.94%
Romanian leu <EURRON=> 4.304 4.306 +0.05% -6.73%
Serbian dinar <EURRSD=> 93.35 93.22 -0.14% -4.15%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +37 basis points to 132bps over bmk*
7-yr T-bond CZ7YT=RR +6 basis points to +104bps over bmk*
10-yr T-bond CZ10YT=RR +6 basis points to +97bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +5 basis points to +364bps over bmk*
5-yr T-bond PL5YT=RR +7 basis points to +323bps over bmk*
10-yr T-bond PL10YT=RR +6 basis points to +284bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +6 basis points to +537bps over bmk*
5-yr T-bond HU5YT=RR +7 basis points to +471bps over bmk*
10-yr T-bond HU10YT=RR +6 basis points to +419bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1516 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
For related news and prices, click on the codes in brackets: All
emerging market news []
Spot FX rates
Eastern Europe spot FX <EEFX=> Middle East spot FX <MEFX=>
Asia spot FX <ASIAFX=> Latin America spot FX <LATAMFX=>
Other news and reports
World central bank news [] Economic Data Guide <ECONGUIDE>
Official rates [] Emerging Diary []
Top events [] Diaries [] Diaries Index []
(Reporting by Reuters bureaus, writing by Jason Hovet and
Dagmara Leszkowicz; editing by Chris Pizzey)
