(Adds Serb central bank, updates prices)
By Jason Hovet
PRAGUE, Oct 7 (Reuters) - The Czech crown led a rebound in
emerging European Union currencies on Tuesday, while Serbia's
central bank sold euros in the market for a third straight day
to prop up the sliding dinar.
With questions hanging over the health of the global banking
system, the spread of the crisis to Iceland, and ex-communist
Europe's underlying economic fundamentals, trading was choppy
and uneven, dealers and analysts said.
"It just proves how dependent the currencies of the region
are to global factors," said Ulrich Leuchtmann, head of foreign
exchange research at Commerzbank in Frankfurt. "At the same time
it shows how countries have different exposure."
Seen as a relatively safe currency due to the country's
strong fundamentals, the Czech crown <EURCZK=> jumped 1.1
percent to 24.512 by 1242 GMT, after trading as high as 24.46 in
thin activity.
"After the crown failed to break (above 25 in recent days),
the trend has turned by 180 degrees," a Prague dealer said.
In Serbia, dealers said the central bank sold euros in the
market again to lift the currency when the dinar <EURRSD=> hit a
three-month low at 80.55 to the euro, after selling 40 million
euros on Monday. By mid-afternoon, the dinar returned to 79.97,
or 0.8 percent down on the day.
The leu <EURRON=> rebounded from a 2 percent loss on Monday
to gain 0.9 percent, to 3.933 per euro, in yo-yo trading. The
Polish zloty <EURPLN=> added 0.5 percent to 3.443 per euro.
The forint <EURHUF=> seesawed to 250.12 per euro, up 0.1
percent from its previous close and off morning highs.
Investors have raised red flags around Romania and Hungary
due to heavy exposure to foreign currency debt and Romania's
wide external deficit. The currencies lost 2 percent on Monday.
Another issue is underlying economic fundamentals that have
suffered particularly due to a collapse in the euro zone's
demand for east European exports -- a trend illustrated in
worse-than-expected production data out of Romania and Hungary
[] released earlier on Tuesday.
"The Romanian leu should thus continue to be one of the
weaker currencies, while the Czech koruna is apt to remain the
'Swiss franc of Eastern Europe'," Commerzbank said in a note.
GLOBAL WORRIES
Global markets, hit by a widening financial crisis and
economic slowdown fears, got a shot of optimism from a surprise
1 percentage point interest rate cut in Australia overnight.
But fragile sentiment shattered as concerns grew over the
health of financial groups, with Royal Bank of Scotland <RBS.L>
shedding around 30 percent in London on funding speculation.
In Iceland, authorities took over the country's second
largest bank, pegged its currency <ISK=> <EURISK=>, and sought
a 4 billion euro loan from Russia.
East Europe's stocks slid on Tuesday, with Bucharest's blue
chip index <> touching a fresh year low, while Prague's PX
<> dove to a 3-1/2 year low.
Bank UBS also said it had slashed its growth forecasts for
emerging Europe due to tightening credit conditions that those
countries with large external deficits were most at risk.
"These countries are likely to find it increasingly
difficult to attract the necessary external funding in an
environment of low international risk appetite and clogged
credit markets," UBS said in a report.
Polish government bonds remained stable on Tuesday, but
dealers said the market has started expecting a rate cut.
Just last month, when Poland surprisingly announced its aim
for euro adoption in 2012, earlier than expected, analysts had
expected at least another hike to counter inflation concerns.
"Expectations (of a rate cut) are getting stronger and it
looks the market expects a first cut in January 2009," a Warsaw
trader said.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2008
Czech crown <EURCZK=> 24.512 24.775 +1.06% +7.49%
Polish zloty <EURPLN=> 3.443 3.459 +0.46% +4.37%
Hungarian forint <EURHUF=> 250.120 250.400 +0.11% +1.08%
Croatian kuna <EURHRK=> 7.123 7.121 -0.03% +2.78%
Romanian leu <EURRON=> 3.933 3.970 +0.93% -9.85%
Serbian dinar <EURRSD=> 79.968 79.348 -0.78% -1.53%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR -5 basis points to 37bps over bmk*
5-yr T-bond CZ5YT=RR -4 basis points to +25bps over bmk*
10-yr T-bond CZ9YT=RR -1 basis points to +32bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -4 basis points to +298bps over bmk*
5-yr T-bond PL5YT=RR +1 basis points to +256bps over bmk*
10-yr T-bond PL10YT=RR +2 basis points to +209bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -21 basis points to +672bps over bmk*
5-yr T-bond HU5YT=RR -31 basis points to +628bps over bmk*
10-yr T-bond HU10YT=RR -21 basis points to +476bps over bmk*
*Benchmark is German bond equivalent.
All currency data taken from Reuters at 1442 CET.
All bond data taken from Reuters at 1226 CET.
Currency percent change calculated from the daily domestic
close at 1500 GMT.
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(Reporting by Reuters bureaux, writing by Jason Hovet, editing
by Victoria Main)
