* Romania cuts rates 25 bps as expected
* Polish PMI flat around 25-month high, zloty up
* Stocks drop sharply with peers
(Releads with stocks, adds bonds)
By Jason Hovet
PRAGUE, May 4 (Reuters) - Central European stocks dropped
with peers on Tuesday as investors questioned whether a record
Greece aid package would work, and the leu held steady after
Romania cut interest rates at a slower pace as forecast.
Romania's central bank cut borrowing costs by 25 basis
points, following half-percentage point reductions at the last
two meetings, as analysts had expected they would to keep hold
of some ammunition in case spillover from Greece's debt crisis
intensifies. []
Markets have greeted a record 110 billion euro bailout for
Greece with scepticism, and investors doubted it would offer
more than temporary relief. []
The growing fear that Greece's struggles could spill over to
other highly-indebted euro zone periphery states has hung on
emerging European Union countries in the past weeks despite the
region's lower debt load and strong growth outlooks.
Warsaw's stock market <> fell more than 2 percent and
Budapest <> dropped 1.2 percent to lead losses in the region
and track other European exchanges down.
"If the Greek problem becomes a more serious problem for the
euro zone as a whole, this will not be good for economies in
eastern Europe," said Commerzbank strategist Lutz Karpowitz.
"Apart from that, risk appetite is still a main driver for
these markets... And Greece is the main driver (of that)."
The heightened volatility has pushed central European
policymakers to be more cautious, with slowing monetary easing
in the case of Romania, and the Czech Republic delaying a
euro-denominated bond issue.
The large majority of analysts also expect Greek worries to
put Czech rate setters in a wait-and-see mode at a Thursday
policy meeting. Markets, though, are split whether the central
bank will cut interest rates once more after recent dovish
comments.
The Czech crown <EURCZK=> dipped 0.1 percent, back near
seven-week lows it hit last week. The leu <EURRON=> was bid 0.1
percent down at 4.131 to the euro at 0925 GMT.
ZLOTY STRENGTH WEIGHS
In Poland, the zloty <EURPLN=> edged down 0.3 percent on the
day to 3.942 after the country's manufacturing Purchasing
Managers' Index stabilised near a 25-month high, but indicated
the zloty's strength was starting to weigh on exports.
The zloty gained more than 6 percent versus the euro since
the start of this year but is almost 3 percent off its April
highs since the central bank intervened in markets for the first
time in 10 years. Analysts expect rate hikes will be delayed
longer. []
Polish bond yields inched up 2-3 basis points on Tuesday.
Hungary's forint <EURHUF=> lost 0.5 percent. February trade
data on Tuesday showed the 13th straight monthly surplus.
[]
Analysts said pressure would stay on the region until it
becomes clearer whether the Greek aid will keep problems from
spreading in the euro zone. The euro, central Europe's main
reference currency, is trading at a one-year low.
[]
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.58 25.552 -0.11% +2.89%
Polish zloty <EURPLN=> 3.942 3.932 -0.25% +4.11%
Hungarian forint <EURHUF=> 271.61 270.3 -0.48% -0.46%
Croatian kuna <EURHRK=> 7.265 7.255 -0.14% +0.61%
Romanian leu <EURRON=> 4.133 4.128 -0.12% +2.53%
Serbian dinar <EURRSD=> 98.88 99.14 +0.26% -3.03%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +4 basis points to 71bps over bmk*
7-yr T-bond CZ7YT=RR +13 basis points to +87bps over bmk*
10-yr T-bond CZ9YT=RR +12 basis points to +79bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +9 basis points to +376bps over bmk*
5-yr T-bond PL5YT=RR +10 basis points to +322bps over bmk*
10-yr T-bond PL10YT=RR +11 basis points to +262bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1127 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Jason Hovet, editing
by Stephen Nisbet)
