* FX down on worries over euro zone, North Korea
* Polish c.bank seen to leave rates flat on Tuesday
(Adds fixed income, Hungary detail)
WARSAW, May 25 (Reuters) - The Polish zloty extended its
losses among Eastern European currencies on Tuesday as the
weekend takeover of a Spanish savings bank and geo-political
risk caused by North Korea added to market jitters, pushing the
region's assets lower.
Central Europe's economies are closely tied to the euro
zone, where investors fear tough fiscal measures mainly in
southern states will dent the bloc's fragile economic recovery.
Additionally, North Korean leader Kim Jong-il has told his
military it may have to go to war but only if the South attacks
first. []
"Spain and North Korea contributed to the global markets'
falls, dragging the zloty," said one Warsaw-based dealer. "And
taking into account yesterday's gains, the region's markets have
room to fall."
By 0932 GMT the zloty <EURPLN=> was 1.4 percent weaker
against the euro and traded at 4.161.
The Czech crown <EURCZK=> was 0.1 percent weaker against the
common currency. Investors were looking ahead to the country's
elections this weekend but with a winner far from certain, it
could result in weeks or months of market uncertainty.
The overwhelming majority of analysts polled by Reuters last
week said a weak government, with no strong majority to kick off
reforms and cut the budget, was one of the main risks
surrounding the Czech vote.
Markets in Hungary and Romania got back into full swing
after a holiday on Monday, with Hungary's forint <EURHUF=> 0.5
percent weaker and Romania's leu <EURRON=> flat versus the euro.
Stocks in the region also dipped on Tuesday, with
Bucharest's BETI <> leading losses, down almost 10 percent
on worries over looming strikes against the government's drastic
spending cuts.
Analysts said nervousness over Romania's political situation
is better reflected in stocks, as the leu may be protected by
the central bank if it weakens markedly.
RATES
The Polish central bank's Monetary Policy Council (MPC) is
due to announce its monthly interest rate decision later in the
day. None of the analysts polled by Reuters expect a rate move
and the decision is unlikely to affect the zloty.
The key interest rate has stood at an all-time low of 3.5
since June 2009 and analysts expect the 10-strong body to start
monetary policy tightening in the second half of the year.
In Hungary, the incoming economy minister said the country's
inflation outlook allowed for significant further interest rate
cuts and said the level of 4.5 percent seemed realistic.
[]
Hungary's central bank has cut its main lending rate by 425
basis points to 5.25 percent <NBHI> since July 2009. The bank
will next discuss interest rates on May 31 and a policymaker
said last week the easing cycle may pause this month.
The bond market was weaker across the region on Tuesday,
tracking currencies. Dealers said the comments by the Hungarian
incoming minister were not supportive for the country's debt.
"What (Economy Minister designate Gyorgy) Matolcsy said did
not calm down the market. He communicates too aggressively what
they (the government) think the central bank should do...," one
Budapest-based dealer said.
"If the bank does not cut rates next week that will not look
very good. It will not create the impression that there is
cooperation (between the bank and the new government)."
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25,688 25,655 -0,13% +2,45%
Polish zloty <EURPLN=> 4,161 4,103 -1,39% -1,37%
Hungarian forint <EURHUF=> 280,78 279,42 -0,48% -3,71%
Croatian kuna <EURHRK=> 7,266 7,267 +0,01% +0,59%
Romanian leu <EURRON=> 4,182 4,182 0% +1,32%
Serbian dinar <EURRSD=> 102,757 101,81 -0,92% -6,69%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +N71 basis points to 126bps over bmk*
7-yr T-bond CZ7YT=RR +18 basis points to +154bps over bmk*
10-yr T-bond CZ9YT=RR +13 basis points to +144bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +11 basis points to +414bps over bmk*
5-yr T-bond PL5YT=RR +18 basis points to +393bps over bmk*
10-yr T-bond PL10YT=RR +14 basis points to +327bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +14 basis points to +587bps over bmk*
5-yr T-bond HU5YT=RR +31 basis points to +568bps over bmk*
10-yr T-bond HU10YT=RR +19 basis points to +476bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1132 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, Writing by Dagmara Leszkowicz)
