* Fed bond buying programme sending cash to EM
* Zloty, forint to benefit most; CEE rates may not rise fast
* Warsaw stocks highest since Aug 2008
* Czech c.bank keeps rates on hold as expected at 0.75 pct
(Recasts with crown, adds Hungary bonds)
By Jason Hovet
PRAGUE, Nov 4 (Reuters) - The Czech crown rose to a two-year
high on Thursday and Warsaw blue-chips hit a similar peak,
leading emerging European gains after the U.S. Federal Reserve
opened the way for more money flows into global markets.
The Fed committed to buy $600 billion in U.S. Treasury bonds
in a second round of quantitative easing (QE2) to support a
struggling U.S. economy on Wednesday despite worries it could do
more harm than good. []
The Fed move is seen driving more money into emerging
markets as investors seek higher yields. Latin American and
Asian policymakers vowed on Thursday to use fresh measures to
curb capital inflows and protect currencies. []
Emerging European policymakers are not expected to follow
their lead as currencies still have not fully recovered from the
economic crisis that started two years ago, but QE2 will limit
scope for central banks that are close to hiking interest rates,
such as Poland and to some extent the Czech Republic.
The Czech central bank left its main rate unchanged, as
expected, at a record low of 0.75 percent on Thursday.
[]
The zloty <EURPLN=> rose 0.7 percent to bid at 3.899 by 1146
GMT, at a 2-1/2 week high. The Hungarian forint <EURHUF=> was
flat. The two are likely to benefit the most from the yield hunt
in emerging Europe, but dealers said gains were limited for now
as the size of the Fed buying had mostly been priced in.
The Czech crown <EURCZK=>, which has led central European
currency gains this year, had become stuck in a range the last
month before breaking out on Thursday with a half percent gain
to its highest since November 2008. It bid at 24.419 per euro.
BNP Paribas recommended going short on the euro versus the
crown before the meeting as policymakers would likely be
tolerant, and the government was driving fiscal tightening.
"The council appears comfortable with using the
koruna as a deflationary tool, thus keeping ultra low interest
rates to date," BNP Paribas said.
The Czech government has pushed an austere 2011 budget,
which has raised its outlook in the eyes of ratings agencies.
Hungary has also introduced a tighter budget for next year,
but Standard & Poor's kept the country's outlook on negative on
Wednesday and warned of future budget risks. []
Budapest, like Bucharest, has struggled to convince
investors on fiscal tightening plans in recent months. This
concern has held back central European among other emerging
markets this year in terms of gains and investor flows.
LIMITED MONETARY SCOPE
Hungary held its first bond tenders since the release of
2011 budget details, which aim to close the fiscal gap but raise
analyst concerns over longer-term sustainability.
The country sold more bonds than planned, with yields rising
slightly from Wednesday's secondary market levels.
Warsaw's blue-chip index <> rose 2 percent to its
highest since August 2008. Budapest stocks <> also gained.
The zloty rose on Wednesday following calls for a rate hike
to cap inflationary pressures by some Polish central bankers who
had previously voted for stable rates. Analysts expect the bank
to raise rates this year. []
Bank BPH said QE2 and likely delay in European Central Bank
rate tightening could lead to strong zloty gains that would hurt
economic recovery and put pressure on the central bank.
Polish policymakers left interest rates at a record low 3.5
percent last week, but did raise the reserve requirement rate.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.419 24.475 +0.23% +7.78%
Polish zloty <EURPLN=> 3.899 3.927 +0.72% +5.26%
Hungarian forint <EURHUF=> 272.65 272.21 -0.16% -0.84%
Croatian kuna <EURHRK=> 7.344 7.34 -0.05% -0.47%
Romanian leu <EURRON=> 4.295 4.294 -0.02% -1.34%
Serbian dinar <EURRSD=> 107.41 107.6 +0.18% -10.73%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -7 basis points to 80bps over bmk*
7-yr T-bond CZ7YT=RR -9 basis points to +84bps over bmk*
10-yr T-bond CZ9YT=RR +2 basis points to +110bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +1 basis points to +380bps over bmk*
5-yr T-bond PL5YT=RR -2 basis points to +358bps over bmk*
10-yr T-bond PL10YT=RR -3 basis points to +319bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1248 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
For related news and prices, click on the codes in brackets: All
emerging market news []
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Eastern Europe spot FX <EEFX=> Middle East spot FX <MEFX=>
Asia spot FX <ASIAFX=> Latin America spot FX <LATAMFX=>
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World central bank news [] Economic Data Guide <ECONGUIDE>
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(Reporting by Reuters bureaus, writing by Jason Hovet; Editing
by Toby Chopra/Ruth Pitchford)
