* Forint assets fall on IMF criticism, constitution change
* Dollar firming weakens emerging European assets
* Zloty supported by data boosting rate hike expectations
(Recasts with new prices, comments)
By Dagmara Leszkowicz and Sandor Peto
WARSAW/BUDAPEST, Oct 26 (Reuters) - The forint fell on
Tuesday as Hungary's government moved to curb the Constitutional
Court's right to make rulings on pension system plans criticised
by the central bank, the European Union and the IMF.
Central European markets have become more sensitive to
negative news after no new policy initiatives emerged from the
Group of 20 meeting of finance minister over the weekend.
Expectations that the U.S. Federal Reserve would flood
markets with cheap money contributed to gains in the region's
emerging markets in the past months, but concerns that those
hopes may be overdone made these markets more fragile this week.
Hungary's forint<EURHUF=> and the Czech crown both eased by
half a percent against the euro by 1350 GMT to 274.78 and
24.622, respectively, as a fall in risk appetite knocked
equities lower in the world and the U.S. dollar firmed against
the euro <EUR=>.
Hungary's ruling Fidesz party proposed bills on Tuesday to
prevent the Constitutional Court ruling on changes in the
pension system and other controversial budgetary issues.
"The main cause of the forint weakening was the euro/dollar
cross move but the court story -- which is a legal, but not too
elegant move -- doesn't reassure investors either," one
Budapest-based currency trader said.
"The problem is that these uncertainties may add up in the
heads of foreign investors, and they might build them into their
asset allocations as political risk."
Hungarian government bond yields rose by 6-15 basis points,
mainly at the long end of the curve as the tax, pension and
other plans help the government to meet budget deficit targets
in 2010 and 2011 but create long-term concerns.
"The 10-year yields still stay in their recent 6.90-7.15
percent range so I would not say that this is a weakening
trend," one bond trader said.
"But if the central bank seems to enter an interest rate
hike cycle, yields might rise by even 50-80 basis points," the
trader added. "Some analysts have said that the bank will lift
its inflation forecasts next month, the question is how that
will influence the (monetary policy) decision makers."
POLISH RATE HIKE EXPECTATIONS
Poland's central bank will decide on interest rates on
Wednesday and the zloty outperformed the region, getting a brief
lift from retail sales figures which strengthened the case for
interest rates to rise in the coming months and also weakened
Polish government bonds slightly.
Retail sales surged 8.6 percent year-on-year in September in
central Europe's biggest economy.
"Clearly, the data is bringing us closer to interest rate
hikes, which may even happen tomorrow," said Przemyslaw
Winiarczyk, a dealer at Millennium bank.
"Such a scenario would result in even stronger appreciation,
even to 3.86 (zlotys) to the euro."
As of 1350 GMT, the zloty was weaker from Monday by 0.1
percent at 3.983 against the euro.
The Czech crown which has been the best-performing currency
in the region this year, remains vulnerable, having broken the
24.650 support level against the euro, dealers said.
The leu <EURRON=> shed 0.2 percent to 4.276 and remains
vulnerable to political uncertainty in Romania. Serbia's dinar
<EURRSD=> hit a record low at 107.2 to the euro, and dealers
said they saw no sign of the central bank repeating its earlier
interventions to help the currency.
Analysts said the Group of 20 meeting had little, if any,
impact on the overall outlook for emerging Europe, which may
benefit from cheap money seen coming out from the U.S.
RBC strategist Nigel Rendell said there was still room for
further appreciation in the region -- particularly for the zloty
and the forint -- as they still haven't come back to levels last
seen before the global crisis.
"The advantage for central Europe is that the currencies are
not as expensive as some others around the world that have
rallied strongly. We are still not back at levels we saw before
the crisis a couple of years ago," Rendell said.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.622 24.496 -0.51% +6.89%
Polish zloty <EURPLN=> 3.938 3.935 -0.08% +4.22%
Hungarian forint <EURHUF=> 274.78 273.53 -0.45% -1.61%
Croatian kuna <EURHRK=> 7.34 7.337 -0.04% -0.42%
Romanian leu <EURRON=> 4.276 4.268 -0.19% -0.9%
Serbian dinar <EURRSD=> 106.89 106.84 -0.05% -10.3%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +1 basis points to 60bps over bmk*
7-yr T-bond CZ7YT=RR -1 basis points to +77bps over bmk*
10-yr T-bond CZ9YT=RR -2 basis points to +89bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -1 basis points to +535bps over bmk*
5-yr T-bond HU5YT=RR +4 basis points to +517bps over bmk*
10-yr T-bond HU10YT=RR +9 basis points to +458bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1550 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, Writing by Sandor Peto; editing
by Stephen Nisbet)
