* FX gain on positive investor sentiment, local outlook
* Cross plays hit forint; stays behind due to political risk
* Market looks for clues of Polish, Czech rate hike timing
(Updates prices, adds quotes)
By Krisztina Than and Marius Zaharia
BUDAPEST/BUCHAREST, Feb 1 (Reuters) - Poland's zloty led
gains in East European currencies on Monday, and broke through
the psychological 4.0 level on signs of an improved economic
outlook for the region as export markets come back to life.
Analysts consider the zloty <EURPLN=> a potential top gainer
this year after Poland escaped recession altogether in 2009 and
looked set to grow more this year.
The brighter the outlook for growth, the more likely its
central bank may be to raise interest rates later this year and
the currency had gained 1.1 percent on the day by 1504 GMT,
trading at 3.998 per euro.
"We remain constructive on the economy, and expect the MPC
to begin to raise rates in the second half of 2010," Goldman
Sachs said in a note. "The risks are skewed towards an earlier
hike. We remain bullish on the zloty."
Earlier in the session, the zloty was bid as high as 3.9920
per euro, its strongest in a year, and analysts say this
signalled the currency may have has strength to firm further.
"I believe this is an important positive signal for model
funds, that we see are buying the zloty, so the current bonanza
can continue," said Bartosz Pawlowski, FX strategist at BNP
Paribas in London.
Also supporting the zloty was news Poland will hold the
bookbuilding process for a 16-percent stake in Enea <ENAE.WA>
between Feb 4 and Feb 9, according to company documents.
[]
MANUFACTURING IMPROVES
Other currencies gained more moderately as markets took note
of a spate of positive manufacturing indices which pointed to a
pickup in production across Central and Eastern Europe as its
key export markets recover from last year's slump.
The index of Czech purchasing managers (PMI) improved for
the third straight month in January, while a separate survey in
Hungary showed its index jumped above 50 -- the threshold
dividing contraction from growth -- for the first time in 18
months. []
"The EU's fiscal concerns aside, at least the manufacturing
rebound is on track as... emerging EMEA finally moves into
expansionary territory," Barclays Capital said in a note.
The Romanian leu <EURRON=>, benefiting from the region's
highest interest rates as well as the recent end of a political
stalemate and unlocking of its international aid package,
followed the zloty to gain 0.5 percent.
The Czech crown <EURCZK=> firmed 0.5 percent as well, while
the Hungarian forint <EURHUF=> was flat on the day, kept behind
by risks associated with parliamentary elections due in April.
"The forint underperforms as there is a long zloty/short
forint game," one Budapest-based dealer said.
"The forint is easing in both the zloty and the leu cross.
We will have elections and any significant forint gain is
unlikely in the next few months... Mainly London names take part
in the zloty/forint play."
Polish bonds were stronger, tracking the zloty. Hungarian
bond yields also dropped a few points, benefiting from Polish
gains, while Czech bonds were a touch weaker
While Hungary's central bank is seen easing the key policy
rate to 5.5 percent in the first half from the current 6
percent, markets in Prague were looking ahead to Thursday's rate
setting meeting for clues of how soon rates could be raised.
"Clarity around the timing of the first rate hikes should
emerge after the inflation report in May, with the first hikes
being delivered in 3Q at the earliest, although 4Q is more
likely," UniCredit said in a note to clients.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.996 26.13 +0.52% +1.24%
Polish zloty <EURPLN=> 3.998 4.041 +1.08% +2.65%
Hungarian forint <EURHUF=> 270.85 270.77 -0.03% -0.18%
Croatian kuna <EURHRK=> 7.314 7.307 -0.1% -0.07%
Romanian leu <EURRON=> 4.084 4.103 +0.47% +3.76%
Serbian dinar <EURRSD=> 98.53 98.36 -0.17% -2.69%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +3 basis points to 94bps over bmk*
7-yr T-bond CZ7YT=RR -5 basis points to +137bps over bmk*
10-yr T-bond CZ10YT=RR +5 basis points to +131bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -5 basis points to +375bps over bmk*
5-yr T-bond PL5YT=RR -3 basis points to +324bps over bmk*
10-yr T-bond PL10YT=RR -4 basis points to +285bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -11 basis points to +538bps over bmk*
5-yr T-bond HU5YT=RR -3 basis points to +503bps over bmk*
10-yr T-bond HU10YT=RR -13 basis points to +441bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1704 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Marton Dunai and Marius Zaharia; editing by
Patrick Graham and Ron Askew)
