* Czech parlt approves higher deficit for 2010, seen a worry
* Forint leads gains as sentiment improves
* Hungarian cbanker says rate cut expectations too bold
(Updates throughout)
By Krisztina Than and Marius Zaharia
BUDAPEST/BUCHAREST, Dec 11 (Reuters) - The Hungarian forint
firmed on Thursday, leading gains in emerging Europe as a
central banker warned expectations for interest rate cuts went
too far and the region pared some of this week's losses.
However, endemic worries about ballooning budget deficits
across the region came back to focus again after an overnight
decision to raise the Czech budget deficit rang alarm bells
about the fiscal and political risks the region may face by the
end of this year.
At 1506 GMT, the forint <EURHUF=> was 1.1 percent firmer on
the day, the Polish zloty <EURPLN=> was up 0.4 percent and the
Czech crown <EURCZK=> was 0.3 percent stronger. Technical
factors also exacerbated forint moves, dealers said.
In Hungary, rate setter Peter Bihari told Reuters in an
interview low inflation pressure justified monetary easing, but
markets priced in deeper cuts than it should. []
"We have been firming all day, (the comments) may have
helped to extend gains a bit," a currency dealer said.
The bank has cut its base rate by a combined 300 basis
points in the past five months to 6.5 percent <NBHI> and it is
seen cutting another 50 basis points on Dec. 21.
In Czech Republic, 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. []
A threat that the technocrat government could quit -- which
it had indicated provided politicians push through changes
hiking the gap above the original 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 ahead of elections next year.
"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.
NOT OVER YET
Romania's leu <EURRON=> was lagging peers, with markets
eyeing political developments after Sunday's presidential race
won by incumbent president Traian Basescu and challenged by his
leftist opponent in court. []
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.
"The leu can weaken at any time, because political
uncertainty is not over yet," one dealer said.
However, dealers said they suspected the central bank will
intervene to prop up the unit as they say it may have done it
repeatedly this year. The bank has always refused to comment.
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. []
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 bond yields fell 1-2 basis points across the curve.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.706 25.792 +0.33% +4.07%
Polish zloty <EURPLN=> 4.141 4.158 +0.41% -0.63%
Hungarian forint <EURHUF=> 271.7 274.64 +1.08% -3%
Croatian kuna <EURHRK=> 7.26 7.262 +0.03% +1.45%
Romanian leu <EURRON=> 4.241 4.246 +0.12% -5.34%
Serbian dinar <EURRSD=> 95.93 95.2 -0.76% -6.72%
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 1706 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/
Krisztina Than/Marius Zaharia, Editing by Victoria Main)
