* Zloty rebounds from 7-wk low, still down over 1 pct
* Polish budget news, C/A data dent investment outlook
* Regional stock markets also in the red
(Updates prices, adds bonds, new comments)
By Gergely Szakacs
BUDAPEST, Sept 14 (Reuters) - Poland's zloty rebounded on
Monday after opening over two percent lower, pressured by recent
news its budget deficit was likely to double next year, which
also dragged other central European currencies lower.
At 0857 GMT, the zloty <EURPLN=> was down 1.8 percent to the
euro from its Friday close, recovering some ground after hitting
a seven-week low at 4.2444, past a key level of 4.2 on the back
of last week's poor news flow and weaker global sentiment.
"In the past weeks we wrote about EURPLN above 4.20 and this
scenario came to life this morning after the worsening of
sentiment on Asian markets on the anniversary of Lehman
Brothers' fall," wrote BZ WBK bank in a morning note.
"The zloty will continue to be under pressure from negative
fiscal news."
Poland last week laid out a planned 2010 budget deficit at
twice this year's projected shortfall, while its current account
surprised by sinking to a deficit of 565 million euros in July
from a surplus of 459 million in June.
"Although the turnaround in the current account this year
has proved exceptionally strong, the drop in foreign direct
investment is negative for the investment outlook," Raffaella
Tenconi at Wood&Company said in a morning note.
"On the positive side, a recovery in other investment
inflows would support a strengthening of domestic demand."
Polish bond prices fell slightly, tracking the zloty, and
dealers said the long-end of the curve was likely to be harmed
even further as investors were cautious about the country's
borrowing needs next year.
Other regional currencies also suffered, with Hungary's
forint <EURHUF=> shedding close to one percent.
"The zloty got hammered this morning, probably due to the
lack of liquidity, which also dragged the forint lower," a
currency dealer said, adding that the 275 level was a key
support, which could limit losses in the forint.
Hungarian bond yields trickled lower at the short end of the
curve with traders citing healthy demand for shorter maturities,
driven by expectations that the central bank could cut interest
rates by another 50 basis points to 7.5 percent this month.
The Czech crown <EURCZK=> traded a touch weaker compared to
its Friday close, when the unit took only a small hit from data
showing continued slump in retail sales, which some analysts
said could lead to one more interest rate cut.
Czech retail sales fell 4.9 percent year-on-year in July,
less than analysts had forecast, and the same pace as in June.
A central bank board member also said in a newspaper
interview that a further drop in Czech interest rates cannot be
excluded but the central bank is watching how much ammunition it
has left.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.505 25.435 -0.27% +4.89%
Polish zloty <EURPLN=> 4.241 4.167 -1.74% -2.97%
Hungarian forint <EURHUF=> 274.59 272.05 -0.93% -4.02%
Croatian kuna <EURHRK=> 7.33 7.328 -0.03% +0.48%
Romanian leu <EURRON=> 4.278 4.264 -0.33% -6.16%
Serbian dinar <EURRSD=> 93.401 93.42 +0.02% -4.2%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR -2 basis points to 197bps over bmk*
7-yr T-bond CZ7YT=RR -2 basis points to +186bps over bmk*
10-yr T-bond CZ10YT=RR -2 basis points to +182bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -4 basis points to +397bps over bmk*
5-yr T-bond PL5YT=RR -3 basis points to +359bps over bmk*
10-yr T-bond PL10YT=RR 0 basis points to +304bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -4 basis points to +633bps over bmk*
5-yr T-bond HU5YT=RR -3 basis points to +565bps over bmk*
10-yr T-bond HU10YT=RR -1 basis points to +492bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1057 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
(Reporting by Reuters bureaus, writing by Gergely Szakacs;
editing by Patrick Graham and Toby Chopra)
