* FX holds on to this week's gains
* Hungary's May inflation came well above forecast
* Czech industry plunges over 20 percent y/y in April
(Recasts with new comments, prices)
By Marius Zaharia and Sandor Peto
BUCHAREST/BUDAPEST, June 11 (Reuters) - Central European
currencies moved little on Thursday, taking a pause after a
firming in the past several days as players are waiting to see
whether Latvia can avoid the devaluation of its currency.
"As we have seen over the past days, the Latvia story is
volatile. Investors can turn sour immediately after Latvia steps
on the wrong foot again," one Bucharest-based dealer said.
Hungarian data showed a surprise jump in annual inflation to
3.8 percent, confirming expectations that the central bank will
not cut rates soon, but the forint<EURHUF=D2>, the top gainer in
the region in the past days, stayed flat.[]
Hungarian bond yields rose, mainly at the long end of the
curve, but this was a technical move after recent yield falls
rather than a reaction to the figures, traders said.
"After all, the world is still full of risks," one trader
said. "The region, including the Baltics, may still hide
surprises, (but) high interest rates give support to the
forint."
Even before the inflation data release, Hungarian central
bank governor Andras Simor said on Wednesday interest rate cuts
would be "very risky" for financial stability and any easing
would depend on a stabilisation of investors' risk perception.
[]
The domestic market of the region's biggest economy, Poland,
was closed due to a public holiday, and the currencies of the
European union's emerging markets moved in tighter ranges than
in the past weeks.
The Polish zloty<EURPLN=> firmed 0.45 percent against the
euro by 1339 GMT to 4.476. The Czech crown<EURCZK=> gained 0.4
percent and the Romanian leu<EURRON=> was firmer by 0.1 percent.
The region's stock markets gave up some ground after strong
rises in the past days.
LATVIA, GLOBAL MOOD WATCHED
Central Europe's currencies fell sharply for months before a
rebound started in March. They are set to regain further ground
if a recovery in global risk appetite continues and the key
drivers of the currencies will be shifts in the global mood and
developments in Latvia, dealers and analysts said.
Worries over a possible currency devaluation in Latvia have
faded over the past two days, lifting downward pressure on
central European assets. On Thursday the government denied
rumours that Prime Minister Valdis Dombrovskis was preparing to
resign.[]
Central banks in the region remain on watch in markets as
recession or economic slowdown put pressure on them to cut
rates, while concern over the fragility of the improvement in
the global market mood remains a key argument against rate cuts.
In the Czech Republic, data showed industrial output plunged
some 22 percent in April, slightly less than last month's flash
estimate [] <CZIPY=ECI>.
Overnight, the IMF published Romania's letter of intent for
the financial aid secured in March, which envisaged a faster
drop in inflation due to the deepening economic downturn
[].
On Thursday, central banker Eugen Dijmarescu said he
expected Romania's recession to bottom out in the third quarter
this year []. The IMF expects the economy to
contract by around 4 percent in 2009.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.693 26.79 +0.36% +0.22%
Polish zloty <EURPLN=> 4.476 4.496 +0.45% -8.07%
Hungarian forint <EURHUF=> 279.44 279.4 -0.01% -5.69%
Croatian kuna <EURHRK=> 7.268 7.26 -0.11% +1.33%
Romanian leu <EURRON=> 4.192 4.196 +0.1% -4.24%
Serbian dinar <EURRSD=> 93.876 93.886 +0.01% -4.68%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +31 basis points to +121bps over bmk*
4-yr T-bond CZ4YT=RR +4 basis points to +136bps over bmk*
8-yr T-bond CZ8YT=RR +7 basis points to +248bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -28 basis points to +806bps over bmk*
5-yr T-bond HU5YT=RR -62 basis points to +739bps over bmk*
10-yr T-bond HU10YT=RR -49 basis points to +657bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1539 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Marius Zaharia;
Editing by Ruth Pitchford)
