* Risk aversion rises, hitting FX, stocks
* Polish cbank expected to stay on hold on rates
(Adds bonds, updates prices)
By Jason Hovet
PRAGUE, Jan 26 (Reuters) - Hungary's forint hit a one-month
low as investors retreated broadly from emerging markets on
Tuesday, while the zloty fell ahead of a Polish interest rate
decision seen leaving the cost of borrowing unchanged.
Concern over the world economy rose after China clamped down
on lending and the United States looked to freeze domestic
spending, highlighting fears a global recovery could stall and
drag on central Europe's own revival. []
The ex-communist economies are seen posting a modest rebound
this year after a sharp downturn last year when only Poland
avoided recession. Strategists have said emerging European
markets should extend a rally in the first half of the year.
By 1022 GMT, the forint <EURHUF=> lost 0.2 percent to bid at
273.1 to the euro and the zloty <EURPLN=> fell 0.6 percent. The
Czech crown <EURCZK=> dropped 0.3 percent, while Romania's leu
<EURRON=> dipped 0.2 percent to 4.128 to the euro.
Dealers said a weaker euro, which central European
currencies often track, was hitting currencies, but that also
some investors were selling against others in the region. Some
banks have recommended selling the forint against the zloty,
which is backed by Poland's stronger economy.
"It's the usual mantra: strong dollar and CEE-3 (Poland,
Hungary, Czech Republic) weakness," a Budapest currency dealer
said. "What's more, there are players selling HUF and buying
zloty."
Domestic stock markets also opened weaker, losing around 2
percent, with Budapest <> down 2.4 percent.
WATCHING GLOBAL MOOD
The region's currencies have pulled back from January highs
after a strong start to the year, with Greece's spiralling
budget gaps highlighting fiscal weakness that may weaken other
countries too.
However, strong demand at the first Greek debt issue this
year on Monday allayed some fears, rallying markets.
[]
The forint lagged some of the rebound on Monday after the
Hungary central bank cut interest rates to 6 percent, its lowest
rate since 2005-2006. Analysts expect a bottom to rates at 5.5
percent in a bid to aid economic recovery. []
But the drop in rates was cutting the premium paid on
Hungarian assets, hurting demand as risk aversion creeps up.
"If sentiment on the financial markets deteriorates
sustainably the HUF's carry could quickly turn out to be too low
as some countries such as Australia are already beginning to
raise rates," Commerzbank said.
"Against this background shorts in EUR-HUF seem quite high
risk to us."
Monetary easing in Hungary was delayed last year due to
financial market volatility, while Poland and Czech Republic
have already cut interest rates to all-time lows and debate now
focuses on when they will raise rates. []
The Polish central bank will issue its monthly decision on
rates later on Tuesday.
Czech bonds, hammered by investor re-positioning to start
this year, gained on Tuesday, with dealers expecting a pickup in
demand for a new 3-year bond auction on Wednesday.
The government's 10-year bond now yields 4.45 percent, up 45
basis points this month.
"The market has moved more bullish," a Prague dealer said.
"We have reached some interesting yield levels."
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 26.057 25.988 -0.26% +1%
Polish zloty <EURPLN=> 4.097 4.072 -0.61% +0.17%
Hungarian forint <EURHUF=> 273.1 272.56 -0.2% -1.01%
Croatian kuna <EURHRK=> 7.292 7.289 -0.04% +0.24%
Romanian leu <EURRON=> 4.128 4.119 -0.22% +2.65%
Serbian dinar <EURRSD=> 97.53 97.36 -0.17% -1.69%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR -1 basis points to 97bps over bmk*
7-yr T-bond CZ7YT=RR 0 basis points to +140bps over bmk*
10-yr T-bond CZ10YT=RR -4 basis points to +127bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1123 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
For related news and prices, click on the codes in brackets: All
emerging market news []
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(Reporting by Reuters bureaus, writing by Jason Hovet)
