* FX up on weaker dollar, positive signs on economies
* KGHM sale supports Polish bonds
* Hungary rates should fall, in smaller increments -c.banker
(Updates throughout)
By Jason Hovet and Dagmara Leszkowicz
PRAGUE/WARSAW, Jan 8 (Reuters) - Encouraging signs on growth
and a weaker dollar drove gains for emerging European markets on
Friday, with Poland's bonds also buoyed by a government sell-off
that was good news for public finances in a tough budget year.
Currencies, which tend to rise with the euro, were lifted in
afternoon trade when the dollar fell to session lows after a
U.S. jobs report. []
The Hungarian forint <EURHUF=> rose 0.8 percent on the day,
drawing strength from a slowing decline in industrial output,
which added to evidence that the region was recovering from
sharp contractions last year.
There were also bullish signs on growth from a Polish
central bank official while the state sealed the sale of 10
percent of copper miner KGHM <KGHM.WA> for $720 million, both
good news for government coffers as ministers fight to keep its
deficit under control. [] []
The zloty <EURPLN=> was 0.7 percent stronger against the
euro, bidding at 4.085 by 1503 GMT, although dealers said the
KGHM sale was having a limited direct impact.
"The market still expects privatisation inflows to boost the
FX market further on but...sentiment is still mixed and right
now most investors have a 'wait-and-see' approach," a Warsaw
dealer said.
Still, the new year has started well for Polish markets, and
gains for KGHM shares, which fell initially on Thursday when
Reuters broke the news of the dilution of its free-float, rose
to buoy the main Warsaw index <>.[]
Polish bond yields have fallen 13 basis points this week,
helped by emerging market analysts tipping the zloty to be one
of 2010's winners after the Polish economy outperformed most of
its peers in the financial crisis. <CEEFXPOLL01>
The zloty <EURPLN=> gained 0.9 percent on the day. The Czech
crown <EURCZK=> was flat, and Romania's leu <EURRON=> just up.
BOND SHAKEUP
Hungarian bonds also extended gains seen since the start of
the year, with the 10-year yield falling around 11 basis points
on Friday, as foreign investors re-position in the region.
"Investors bid the whole curve pretty heavily," said one
dealer in Budapest. "The interest seems to be strong overall."
Hungary bond yields have dropped as much as 45 basis points
this year, with the spread between the 3- and 10-year bonds
tightening to 40 basis points from 60. The 3-year <HU3YT=RR> was
quoted with a yield of 7.15 percent on Friday.
Central bank policymaker Csaba Csaki said interest rates
should fall further, but at a slower pace and that the bank may
even hold fire in its easing cycle ahead of an election due in
April.
The bank reduced its main lending rate by a combined 300
basis points last year, opting for a 25 basis point cut -- the
smallest in the current cycle -- at its meeting in December,
bringing rates to 6.25 percent. []
Czech bonds, though, lost on the long-end on Friday,
steepening the curve more as investors brace for expected heavy
issuance in the first part of the year while the central bank
sounds a more hawkish tone.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.275 26.276 0% +0.16%
Polish zloty <EURPLN=> 4.085 4.113 +0.69% +0.47%
Hungarian forint <EURHUF=> 268.44 269.8 +0.51% +0.71%
Croatian kuna <EURHRK=> 7.291 7.291 0% +0.25%
Romanian leu <EURRON=> 4.16 4.166 +0.14% +1.86%
Serbian dinar <EURRSD=> 97.23 96.89 -0.35% -1.39%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +2 basis points to 64bps over bmk*
7-yr T-bond CZ7YT=RR -3 basis points to +101bps over bmk*
10-yr T-bond CZ10YT=RR +13 basis points to +97bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +5 basis points to +387bps over bmk*
5-yr T-bond PL5YT=RR +3 basis points to +315bps over bmk*
10-yr T-bond PL10YT=RR +1 basis points to +276bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +4 basis points to +536bps over bmk*
5-yr T-bond HU5YT=RR +3 basis points to +497bps over bmk*
10-yr T-bond HU10YT=RR 0 basis points to +412bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1503 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
Dagmara Leszkowicz, editing by Patrick Graham)
