* Romanian currency rose overnight after govt survived vote
* Leu support at 4.26, more reforms seen needed
* Zloty stabilises after losses on cbank rate decision
(Adds fixed income, details)
By Marius Zaharia
BUCHAREST, Oct 28 (Reuters) - Romania's leu on Thursday lost
the bulk of overnight gains posted following a failed attempt to
topple the government, as markets turned their attention back to
a review of the country's fiscal reform programme by the IMF.
In Poland, the zloty stabilised after losses in the previous
session triggered by the central bank's decision to keep
borrowing costs unchanged, disappointing some players who had
anticipated a hike in its main interest rate. []
As widely expected, Romania's ten-month-old centrist
government survived a no-confidence vote late on Wednesday over
fiscal tightening moves needed to keep funds from an
International Monetary Fund-led bailout flowing into central
Europe's laggard economy.
The Fund is in Bucharest until Nov. 1 to review Romania's
progress with its reforms, and markets expect new fiscal
challenges ahead for the fragile coalition government, keeping
political risk factors prominent.
The leu <EURRON=> gained about half a percent from
Wednesday's close overnight but failed break through 4.26, its
200-day moving average against the euro. By 0930 GMT, leu bids
backed off a two-week high of 4.259 to trade at 4.264, up 0.2
percent on the day.
"The decision was likely just a temporary breather for the
government," Barclays Capital said in a note.
"The continued fiscal adjustment requires extending wage and
social transfer cuts into 2011, while elections are approaching
in 2012 ... The focus will be on the ongoing IMF mission."
Hungary's forint <EURHUF=>, the Czech crown <EURCZK=> and
the zloty <EURPLN=> were flat or a touch weaker.
Polish bonds extended gains slightly, supported by the rate
decision, and dealers said yields may fall further in the short
term. However, lingering rate hike expectations will keep bond
moves in tight ranges.
ZLOTY OUTLOOK
Poland's central bank did move on Wednesday to tighten
liquidity in its banking sector, raising the minimum reserve
requirement for banks. Governor Marek Belka said this move was
"a small signal" of tighter rates ahead.
"The market reaction (on Wednesday) showed that a rate hike
had already been anticipated," Commerzbank said in a note. "The
appreciation potential of the zloty is therefore limited."
Before the decision, the zloty was expected to rise in the
next 12 months to around 3.78, a level last seen in November
2008 in the midst of the global crisis.
Poland's interest rate outlook does not appear as
currency-supportive as it did before Wednesday.
"If the Fed decides for another round of QE, the risk for
rate hikes in Poland will dwindle even further," BNP Paribas
said in a note.
But the zloty could still gain from privatisation flows and
a clear regional outperformance by the Polish economy, the only
one in Europe to have avoided recession last year.
In Hungary, bonds were flat in thin trade. The government
has to send the 2011 budget draft to parliament by the end of
October, but it was unclear if it will be submitted by then.
The budget is expected to target a deficit of less than the
European Union threshold of 3 percent of GDP.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.645 24.632 -0.05% +6.79%
Polish zloty <EURPLN=> 3.967 3.962 -0.13% +3.45%
Hungarian forint <EURHUF=> 275 275.1 +0.04% -1.69%
Croatian kuna <EURHRK=> 7.338 7.342 +0.05% -0.39%
Romanian leu <EURRON=> 4.264 4.272 +0.19% -0.62%
Serbian dinar <EURRSD=> 107.78 107.05 -0.68% -11.04%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -3 basis points to 80bps over bmk*
7-yr T-bond CZ7YT=RR +1 basis points to +86bps over bmk*
10-yr T-bond CZ9YT=RR +1 basis points to +104bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -5 basis points to +357bps over bmk*
5-yr T-bond PL5YT=RR -7 basis points to +361bps over bmk*
10-yr T-bond PL10YT=RR -1 basis points to +333bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -1 basis points to +548bps over bmk*
5-yr T-bond HU5YT=RR +1 basis points to +522bps over bmk*
10-yr T-bond HU10YT=RR +1 basis points to +458bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1030 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Marius Zaharia; Editing by John Stonestreet)
