* Forint gains overnight on Thursday's inflation data
* Currencies flat compared to the domestic close
* Financing and banking worries still linger
(adds details, fixed income)
By Marius Zaharia
BUCHAREST, June 12 (Reuters) - Central European currencies
held steady on Friday, with the high-yielding Hungarian forint
near its previous local close after investors booked sharp
overnight gains from fading interest rate cut prospects.
Hungary's May inflation data [] came in
surprisingly high on Thursday, boosting expectations for rates
to remain on hold at 9.5 percent. Hungary's rates compare to
3.75 percent in Poland and 1.5 percent in the Czech Republic.
The forint <EURHUF=> has outperformed its peers over the
past days because of the interest rate differential which has
also triggered cross plays against the Polish zloty <EURPLN=>.
By 0947 GMT, all regional currencies had traded rangebound.
"Hungary's poor inflation figures yesterday erased any hope
of a rate cut in the near future and that improved sentiment,"
one dealer said. "(But) I think it firmed too much too quickly
so the forint's likely to take a breather."
Analysts said, however, that in the longer run the pick-up
in inflation may not bode well for the forint as it may erase
the yield advantage in time.
The forint was little moved by final data showing Hungary's
industry fell by some 27 percent on the year in April, unchanged
from a preliminary estimate. []
In the Czech Republic, central bank Vice-Governor Miroslav
Singer reiterated late on Thursday he could not rule out further
rate cuts provided the crown <EURCZK=> remained stable,
inflation low and a global economic crisis deepened.
[]
In the euro zone, the region's main trading partner,
industrial output plunged more than a fifth on the year in
April, but the data did not scare off investors in central
Europe. []
"Nobody gets impressed by a 20 percent drop any more," one
Bucharest dealer said.
LINGERING WORRIES
Dealers said investors were also waiting to see whether
Latvia can avoid the devaluation of its currency, fears of which
have weighed this month. Those worries have eased this week,
supporting regional currencies, but market watchers do not rule
out a comeback of the Baltic state's economic headaches.
A short rally for central European currencies this week lost
steam on Thursday, as concerns over the health of the region's
banks and financing hurdles still pointed towards a more fragile
outlook compared to other emerging regions.
RBC Capital Markets recommended on Thursday a long play on
Latin American assets against shorting central European ones.
"Within a 3-9 month timeframe, ... investors should focus on
trades with a long LATAM/short CEE bias," it said.
"CEE ... will remain burdened by not only negative cyclical
but also deep structural issues that will take considerable time
to correct (i.e. deleveraging following an excessive foreign
borrowing binge, banking-system bailouts, ballooning govt debt,
possible changes in FX regimes, etc.)."
In debt markets, Hungarian bonds dropped 5-10 basis points
following the overnight forint strengthening, while Polish bonds
were steady in a quiet trade after Thursday's market holiday.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.645 26.694 +0.18% +0.41%
Polish zloty <EURPLN=> 4.471 4.455 -0.36% -7.96%
Hungarian forint <EURHUF=> 277.94 276.97 -0.35% -5.18%
Croatian kuna <EURHRK=> 7.26 7.263 +0.04% +1.45%
Romanian leu <EURRON=> 4.198 4.194 -0.1% -4.37%
Serbian dinar <EURRSD=> 93.67 93.799 +0.14% -4.47%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +28 basis points to 123bps over bmk*
4-yr T-bond CZ4YT=RR +8 basis points to +145bps over bmk*
8-yr T-bond CZ8YT=RR +15 basis points to +255bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +4 basis points to +367bps over bmk*
5-yr T-bond PL5YT=RR +12 basis points to +306bps over bmk*
10-yr T-bond PL10YT=RR +10 basis points to +269bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +26 basis points to +790bps over bmk*
5-yr T-bond HU5YT=RR +25 basis points to +741bps over bmk*
10-yr T-bond HU10YT=RR +23 basis points to +659bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1247 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Marius Zaharia;
Editing by ...)
