* Czech parlt approves higher deficit for 2010, seen a worry
* Forint, zloty lead gains as sentiment improves
(Adds details, bonds)
By Gergely Szakacs and Krisztina Than
BUDAPEST, Dec 10 (Reuters) - Central European currencies
firmed on Thursday with the forint leading gains, although
dealers said an overnight decision to raise the Czech budget
deficit was disconcerting and may become a risk for the crown.
The Czech parliament gave final approval to the 2010 budget
late on Wednesday, with extra spending pushed through by leftist
deputies raising the planned deficit to around 5.7 percent of
gross domestic product. []
The original proposal assumed the shortfall at 5.3 percent.
The crown <EURCZK=> shrugged off the news to trade 0.3
percent higher and dealers said the news would have a negligible
effect on trading on Thursday.
However, a threat that the technocrat government could quit
-- which it had indicated provided politicians push through
changes hiking the gap above the 5.3 percent level -- was a risk
for the crown, dealers said.
The push for a higher deficit also signalled limited
appetite for fiscal consolidation next year when the Czech
Republic will have elections.
"What matters is that it showed to the markets that no high
expectations regarding fiscal consolidation ... can be placed on
Czech Left should they win the summer 2010 elections," said
Martin Lobotka, analyst at Ceska sporitelna in a note.
"It is my feeling that Czech Left still does not appreciate
the gravity of large deficits -- it appears to be living in the
"Resources will always be out there" world," he added.
Romania's leu <EURRON=> was also about 0.3 percent higher,
with markets eyeing developments on the political front after
leftist Mircea Geoana said on Wednesday he would respect a court
ruling on his challenge to the narrow presidential election
victory of Traian Basescu, but would not work with Basescu
afterwards. []
Dealers said the leu <EURRON=> was under weakening pressure
stemming from Greece's credit rating downgrade and banking fears
given Romania's exposure, adding to the strain of the ongoing
political crisis.
However, they said they suspected the central bank will
intervene to prop up the unit as they say it has done repeatedly
this year. The bank has always refused to comment.
"I'm not clear if we're going to see 4.29 level again or if
we'll stay around 4.25," said one dealer in Bucharest.
WATCHING EVENT RISKS
The forint <EURHUF=> jumped 0.9 percent while the zloty
<EURPLN=> was 0.6 percent higher.
"Sentiment is a bit better...it's always bad news coming out
followed by a rebound and calming down on markets," a Budapest
dealer said.
"On a technical basis the forint could firm to 271.50/272
...but I expect a range of 272 to 275 for today and watching any
event risks," he added.
Czech bonds were mixed on Thursday, with markets holding
back until the central bank's policy meeting as chances for a
rate cut still linger due to waning consumer demand still
hanging on the economy. []
Trading in the crown is expected to be subdued until the
rate meeting next Wednesday, with markets divided over whether
the bank will cut rates further or leave them on hold at a
record low of 1.25 percent.
"We are expecting a tight range trading until the CNB
meeting next Wednesday, expecting a 25 bp rate cut which is
currently priced in by about 50 percent," Komercni Banka traders
said in a note.
The Hungarian bond market was quiet, with the government
selling 35 billion forints worth of 12-month bills at an auction
<HUAUCTION01>, 5 billion less than planned and the average yield
edged 4 basis points higher from two weeks ago.
Polish bonds firmed, tracking the zloty.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.708 25.792 +0.33% +4.06%
Polish zloty <EURPLN=> 4.133 4.158 +0.6% -0.44%
Hungarian forint <EURHUF=> 272.27 274.64 +0.87% -3.2%
Croatian kuna <EURHRK=> 7.262 7.262 0% +1.42%
Romanian leu <EURRON=> 4.234 4.246 +0.28% -5.19%
Serbian dinar <EURRSD=> 95.86 95.2 -0.69% -6.66%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR -36 basis points to 89bps over bmk*
7-yr T-bond CZ7YT=RR -2 basis points to +98bps over bmk*
10-yr T-bond CZ10YT=RR -1 basis points to +86bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR 0 basis points to +386bps over bmk*
5-yr T-bond PL5YT=RR -2 basis points to +342bps over bmk*
10-yr T-bond PL10YT=RR -1 basis points to +306bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -1 basis points to +555bps over bmk*
5-yr T-bond HU5YT=RR -2 basis points to +507bps over bmk*
10-yr T-bond HU10YT=RR -1 basis points to +444bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1157 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, Writing by Gergely Szakacs and
Krisztina Than)
