* FX, stocks down as investors cut risk
* Zloty gives up IMF gains, crown hits 2-1/2 week low
* Forint slips as markets cautious before cbank
(Adds details, fixed income)
By Jason Hovet
PRAGUE, April 20 (Reuters) - Investors cut back on riskier
holdings on Monday, pushing the Polish zloty to a one-week low
and wiping out its gains from news of an IMF credit line last
week.
Other emerging European currencies slipped along with stock
markets, while markets were braced for any surprises from a
Hungarian interest rate decision later in the day even though
analysts expected rates flat at 9.5 percent due to currency
volatility.
The zloty <EURPLN=> lost 1.6 percent to 4.364 to the euro by
0922 GMT, returning to levels seen before last Tuesday's
government announcement that it would seek $20.5 billion under
the International Monetary Fund's new flexible credit line.
Strategists expect the deal to buoy the zloty, which hit a
three-month high on the news, against its regional peers. But
they also said gains were overdone as there were still no money
flows from the facility introduced for states with stronger
fundamentals.
Dealers said a stronger dollar on Monday hit the region as
investors moved to safer assets, but liquidity was thin.
"It is not just the zloty falling in the region, but it has
suffered the most," a Warsaw dealer said.
Further pressure also came from Poland's signal that it may
still cut interest rates in the coming months, while neighbours
look set to keep rates flat for now. Doveish Polish central
banker Stanislav Owsiak said on Monday a pause in easing may be
needed due to an uptick in inflation. []
PULLBACK
The Czech crown <EURCZK=> fell to a 2-1/2 week low at 27.04
per euro, while Romania's leu <EURRON=> was little changed as
local markets were shut for the orthodox Easter holiday.
In Hungary, the forint <EURHUF=> fell 0.6 percent from
Friday's domestic close to 298.2 per euro as investors stayed
cautious before a central bank policy decision. []
Over the weekend, new Hungarian Prime Minister Gordon Bajnai
said the government would cut spending deeply. []
"Broader sentiment will continue to govern the forint's
course, local fiscal policy will have any impact on the exchange
rate only in the medium term," a local trader said.
Hungarian bond yields widened about 20 basis points.
Investors have returned more to riskier assets in the past
month, and a survey by State Street Global Investors last week
showed aggregate flows into global emerging markets were at its
highest reading since June 2007.
Societe Generale on Friday recommended the zloty against the
forint or leu due to Poland's move to get the IMF credit line
and after its underperformance versus peers. []
The zloty is off 23 percent since July versus a 21 percent
loss for the forint, but has led the region with a 12.6 percent
rise since nearing an all-time low in mid-February.
But strategists expect pressure on currencies to continue
due to a grim economic outlook and lagging effects on the
financial system, although Poland is seen as better placed than
others.
"Fundamentally the situation remains quite difficult,"
SocGen emerging strategist Murat Toprak said on Monday.
"What we fear is a deterioration of the financial system in
central and eastern Europe because of an increase in
non-performing loans. That is our key concern going forward."
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 27.04 26.788 -0.93% -1.06%
Polish zloty <EURPLN=> 4.364 4.295 -1.58% -5.71%
Hungarian forint <EURHUF=> 298.2 296.5 -0.57% -11.62%
Croatian kuna <EURHRK=> 7.38 7.381 +0.01% -0.2%
Romanian leu <EURRON=> 4.221 4.215 -0.14% -4.89%
Serbian dinar <EURRSD=> 92.72 92.84 +0.13% -3.49%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +3 basis points to 211bps over bmk*
4-yr T-bond CZ4YT=RR +11 basis points to +200bps over bmk*
8-yr T-bond CZ8YT=RR +3 basis points to +285bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +22 basis points to +922bps over bmk*
5-yr T-bond HU5YT=RR +24 basis points to +882bps over bmk*
10-yr T-bond HU10YT=RR +24 basis points to +771bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1105 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; Editing
by Toby Chopra/Victoria Main)
