* FX steady after heavy drop in pvs session
* Investors cautious as Latvia devaluation worry stays
* Hungary sells more bonds than planned
(Updates with Hungary bond sale, details)
By Jason Hovet
PRAGUE, June 4 (Reuters) - Central Europe's currencies
steadied versus the euro on Thursday, trading in narrow ranges
after heavy losses the previous day as investor worry over a
possible Latvian currency devaluation kept up pressure.
Market speculation has built that the Baltic state may be
forced to devalue its currency against the euro, highlighting
vulnerabilities in eastern Europe as the world economy tries to
pull itself out of the worst economic downturn in decades.
Hungary's forint <EURHUF=> edged 0.3 percent lower on the
day to 287.696.01 per euro after dropping 2 percent in the
previous session to lead the fall in central Europe.
In Romania, the leu <EURRON=> inched 0.2 percent down to
4.215. Poland's zloty <EURPLN=> gained a touch from Wednesday's
domestic close, bidding at 4.518 to the euro, while the Czech
crown <EURCZK=> was down 0.2 percent at 1118 GMT.
"There was an overreaction yesterday, and we are seeing a
natural correction from that," a London-based dealer said.
Hungary and Romania, like Latvia, have reached out for
International Monetary Fund-led aid packages to plug financing
gaps, and some analysts fear the IMF allowing Latvia to devalue
could change aid strategies in other bailout countries.
The IMF was set to make a statement on Latvia's budget
efforts later in the day, and the Latvian lat <EURLVL=> firmed
ahead of this as the state treasury stepped in. []
In Hungary, the debt agency sold more bonds than planned on
Thursday, a positive sign in building financing worries in the
region. Yields held steady after the sale. []
Latvia failed to sell its debt at auction on Wednesday,
raising nerves this could have complicated Hungary's sale.
Romania was also due to sell bonds in the afternoon.
NO DIRECT LINK
Currencies in the region have stabilised in an emerging
market risk rally seen since March, which has boosted the zloty
and forint around 10 percent in that time.
Hungarian Economy Minister Istvan Varga told Reuters on
Thursday the forint is at a sustainable level and its relative
weakness is helping businesses, while urging investors not to
link the country with Latvian concerns. []
Still, flows to east Europe have not kept up with emerging
peers, and many strategists have expected a return to weakening
as the lagging effects of the global downturn, like rising
joblessness and widening budget gaps, work through economies.
Borrowers in Hungary, Romania, and to some extent Poland are
exposed to foreign currency loans like Baltic households, but
trade between central Europe and the Baltics is limited.
And central European currencies are freely-floating,
although drops in currencies of up to a quarter in the past year
have raised borrowing costs for foreign currency loan holders.
"(Latvian devaluation) would raise the risk perception to
the region and this psychological effect would have a negative
impact on currencies," Commerzbank head of foreign exchange
research Ulrich Leuchtmann.
A Danske Bank note Thursday recommended caution in central
and eastern European markets, but also said the Baltics' direct
link to others like Poland, Hungary and Romania is very limited.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.912 26.854 -0.22% -0.59%
Polish zloty <EURPLN=> 4.518 4.52 +0.04% -8.92%
Hungarian forint <EURHUF=> 287.69 286.72 -0.34% -8.39%
Croatian kuna <EURHRK=> 7.362 7.353 -0.12% +0.04%
Romanian leu <EURRON=> 4.215 4.207 -0.19% -4.76%
Serbian dinar <EURRSD=> 94.13 94.14 +0.01% -4.94%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +1 basis points to 155bps over bmk*
4-yr T-bond CZ4YT=RR +1 basis points to +159bps over bmk*
8-yr T-bond CZ8YT=RR -2 basis points to +278bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -6 basis points to +405bps over bmk*
5-yr T-bond PL5YT=RR -8 basis points to +320bps over bmk*
10-yr T-bond PL10YT=RR -7 basis points to +274bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -1 basis points to +856bps over bmk*
5-yr T-bond HU5YT=RR -1 basis points to +778bps over bmk*
10-yr T-bond HU10YT=RR 0 basis points to +681bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1319 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
For related news and prices, click on the codes in brackets: All
emerging market news []
Spot FX rates
Eastern Europe spot FX <EEFX=> Middle East spot FX <MEFX=>
Asia spot FX <ASIAFX=> Latin America spot FX <LATAMFX=>
Other news and reports
World central bank news [] Economic Data Guide <ECONGUIDE>
Official rates [] Emerging Diary []
Top events [] Diaries [] Diaries Index []
(Reporting by Reuters bureaus, writing by Jason Hovet; Editing
by Toby Chopra)
