* Fx, stocks, bonds firm on euro rise, local news flow
* Leu leads on continuing IMF funding
* Hungary bonds firm despite deficit rise, mainly long end
(Adds bonds, stocks, new comment, updated prices)
By Gergely Szakacs and Sandor Peto
BUDAPEST, July 6 (Reuters) - Central European assets
extended this week's gains on Tuesday, helped by the euro's
gains against the dollar, which signalled improving risk
appetite.
With the euro on a firmer footing, investors shrugged off
news late on Monday of a surge in Hungary's budget deficit.
"We are tracking the euro/dollar <EUR=> cross. (It) looks
like it has found a footing and markets have now priced in most
of the risks existing in the European economy," a Budapest-based
currency dealer said.
"The euro may not fall to 1.2 (versus the dollar) at the end
of the day, so we are now firming along with the region," the
dealer said. "Sentiment is a bit more supportive, stocks are
edging higher and we expect a positive close in Asia as well."
The Romanian leu <EURRON=> led gains, firming half a percent
to 4.237 against the euro by 0935 GMT.
The leu is recovering from a plunge last month and still
benefitting from the International Monetary Fund's (IMF)
decision last week to release the latest tranche of its economic
bailout aid to Romania.
The Polish zloty added 0.2 percent versus the euro to 4.104,
the Hungarian forint was a shade firmer at 285.23, while the
Czech crown, this year's biggest gainer in the region, was a bit
weaker at 25.53. Czech domestic markets were closed for a public
holiday.
The firming of the euro, the region's reference currency,
against the dollar, is often a signal of rising global risk
appetite, which helps the European Union's emerging markets.
The region's main stock indices firmed on Tuesday, with
Budapest's <> rising 1.7 percent, Warsaw's <> 1
percent higher and Bucharest's <> up half a percent.
Government bond prices also rose, led by Hungarian papers,
with yield spreads over corresponding Bunds narrowing by up to
19 basis points.
Hungary's yield curve flattened further, with the spread
between the benchmark 3- and 10-year bonds tightening to just 40
basis points, from more than 100 basis points three months ago,
possibly due to some short covering by foreign investors.
"It's difficult to understand what justifies that yield
flattening, looking at the state budget and the negative impact
of the (planned) bank tax on economic growth," one trader said.
The government's plans to launch a tax on banks to meet its
budget 2010 deficit target, will be a key issue in talks with
the country's lenders, the International Monetary Fund and the
European Commission, due to start on Tuesday. []
The deficit ballooned well over the annual target in June
according to figures released late on Monday. []
LOCAL FACTORS
In Romania, the possibility of central bank intervention to
prevent further weakening of the leu -- which hit all-time lows
against the euro last week -- was supportive, dealers said.
"It seems it's on a continuing firming trend since last
week," said a Bucharest-based dealer. "It's also helped by the
central bank."
The leu has now risen nearly 4 percent since last Thursday,
when it hit its lowest since the introduction of the euro on
worries about the speed of the economic recovery and whether the
IMF would release more funds, which it did on Friday.
The zloty <EURPLN=> continued to get support from the
victory of moderate conservative Bronislaw Komorowski in the
presidential election, which markets expect will pave the way
for further economic reforms.
"It looks like a wave of optimism touched the market," said
one Warsaw-based dealer. "It's still not risk appetite, though
risk aversion eased for sure."
"Komorowski's victory just fits the global trend."
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.53 25.519 -0.04% +3.09%
Polish zloty <EURPLN=> 4.104 4.113 +0.22% 0%
Hungarian forint <EURHUF=> 285.23 285.36 +0.05% -5.22%
Croatian kuna <EURHRK=> 7.19 7.194 +0.06% +1.66%
Romanian leu <EURRON=> 4.237 4.256 +0.45% +0.01%
Serbian dinar <EURRSD=> 103.95 104.05 +0.1% -7.76%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -4 basis points to 91bps over bmk*
7-yr T-bond CZ7YT=RR -5 basis points to +138bps over bmk*
10-yr T-bond CZ9YT=RR -4 basis points to +131bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -7 basis points to +409bps over bmk*
5-yr T-bond PL5YT=RR -7 basis points to +378bps over bmk*
10-yr T-bond PL10YT=RR -7 basis points to +326bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -9 basis points to +610bps over bmk*
5-yr T-bond HU5YT=RR -13 basis points to +577bps over bmk*
10-yr T-bond HU10YT=RR -19 basis points to +481bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1135 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
For related news and prices, click on the codes in brackets:
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(Reporting by Reuters bureaus, writing by Sandor Peto/Gergely
Szakacs; Editing by Susan Fenton)
