(adds detail, Romanian, Czech developments)
By Marius Zaharia and Marton Dunai
BUDAPEST, Feb 19 (Reuters) - The Polish zloty led regional
gains on Thursday, extending a two-day rebound from record lows
as expectations for more sales of Polish EU funds hit home and
officials in eastern Europe continued to talk up currencies.
Regional currency markets were hit this week by
deteriorating growth outlooks and worries about high foreign
debt reliance in some countries.
But the threat from the currencies' weakness to economic
stability has prompted policy makers to launch a defence on
Wednesday [] by verbal interventions and sales in
the currency market by the Polish finance ministry.
The World Bank also stepped in [], calling for
more EU help to the region.
Dealers said the zloty was likely to continue to improve as
investors expect the finance ministry to renew Wednesday's sales
of euros on the currency market bolstered by comments from
Finance Minister Jacek Rostowski. []
Asked whether the ministry would sell more euros on the
market, Rostowski told reporters: "At some point yes."
At 1500 GMT, the zloty <EURPLN=> had gained 1.9 percent at
4.675 per euro. Dealers in Hungary said the zloty's
strengthening helped the forint <EURHUF=> gain 0.7 percent.
"We have tracked the zloty all along, that's why the forint
has strengthened," a Budapest-based currency dealer said.
The Romanian leu <EURRON=> also firmed along with its
regional peers but its gains were limited.
"Some have tried to push the leu firmer along with the
region, but commercial demand has partially offset this," one
dealer said.
ROMANIAN BOND AUCTION SCRAPPED
Many Romanian companies have borrowed in euros in a rush to
catch up with EU standards, fuelling a large current account gap
which now gets harder to finance and is pressuring the leu.
The Romanian leu has mostly failed to follow regional trends
as dealers said the central bank has been defending the currency
against risk aversion through covert interventions.
Meanwhile, a ruling coalition leader said on Thursday
Romania should not rush to ask the IMF for help [].
But a three-year bond tender on Thursday [] in
which the finance ministry rejected all offers, showed an IMF/EU
deal was more likely as domestic financing became more
expensive.
Local players elsewhere pointed to gains on stock markets as
a sign of recovering interest in local assets. Warsaw's blue
chip index <> was up more than 5 percent on the day and
the Budapest bourse was up 2 percent<>.
The Czech crown <EURCZK=> jumped with the region, and also
lifted by recent comments from central bank Vice-Governor
Miroslav Singer saying currency weakness has squashed the
question of lower interest rates.
Czech bonds weakened more after prices dropped on Wednesday
following a poor auction for the government's 8-year, floating
rate bond where less than half the offer was sold.
[]
"I think that stronger than Singer's comments was
yesterday's bond auction result," a fixed income trader said.
"FX swap rates have moved up significantly, along with IRS
(interest rate swaps). Singer was one of the main movers of
course."
Hungarian bonds firmed, with yield dropping 20-40 basis
points as the forint firmed, a trader said.
The zloty, the region's hardest hit currency this year,
bounced on Wednesday after a ruling party official said Poland
had started talks on joining the pre-euro ERM-2 mechanism, while
the government converted euros from EU funds on the market.
"Yesterday's move of the government could be easily called a
masterpiece. I think it was a really insignificant amount of
money, but this move affected the market psychologically," said
one Warsaw-based dealer.
After rate cuts have been priced in for a long time, a
crisis of confidence in emerging eastern Europe looks likely to
make the region's central banks slow down or halt cuts in
interest rates, despite mounting concerns over economic growth
[]
Hungary is now seen keeping them on hold on Monday
according to a Reuters poll [].
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 28.648 28.81 +0.57% -6.61%
Polish zloty <EURPLN=> 4.677 4.764 +1.86% -12.02%
Hungarian forint <EURHUF=> 301.41 303.43 +0.67% -12.56%
Croatian kuna <EURHRK=> 7.47 7.427 -0.58% -1.41%
Romanian leu <EURRON=> 4.265 4.276 +0.26% -5.88%
Serbian dinar <EURRSD=> 95.037 94.448 -0.62% -5.85%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +2 basis points to 193bps over bmk*
4-yr T-bond CZ4YT=RR -13 basis points to +220bps over bmk*
8-yr T-bond CZ8YT=RR +2 basis points to +290bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -17 basis points to +437bps over bmk*
5-yr T-bond PL5YT=RR -17 basis points to +365bps over bmk*
10-yr T-bond PL10YT=RR -13 basis points to +300bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -37 basis points to +1147bps over
bmk*
5-yr T-bond HU5YT=RR -75 basis points to +1034bps over
bmk*
10-yr T-bond HU10YT=RR -59 basis points to +860bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1622 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
(Reporting by Reuters bureaus, writing by Marius Zaharia and
Marton Dunai; Editing by Victoria Main)
