* Zloty, forint hold week's gains as FX steady
* Polish bonds sell well, but Czech demand weak on long end
* Polish industry slips, CEE budgets watched
(Updates with bond auctions, Polish data)
By Jason Hovet
PRAGUE, May 20 (Reuters) - Central European currencies held
mostly steady against the euro on Wednesday, with the Polish
zloty and Hungarian forint coming off earlier highs after a
pause in this week's sharp gains.
Investors have bought into emerging European assets more in
the past two months, lifting currencies several percent, adding
more than 20 percent gains to stock markets and raising demand
for the region's government bonds.
On Wednesday, Poland sold all of its planned offer of 10-
and 20-year bonds, but a Czech 15-year bond auction was hit with
muted demand compared to sales of shorter-dated issues.
[] []
Bond yields were little moved, but the zloty <EURPLN=> was
up 0.1 percent to bid at 4.368 to the euro, off session highs.
The Czech crown <EURCZK=> added 0.3 percent by 1232 GMT,
while the forint <EURHUF=> gained 0.1 percent from Tuesday's
domestic close to 277.25 to the euro.
The zloty and forint, which are down 23 percent and 15
percent since the end of June, have gained 3-4 percent this week
on hopes that the global economic downturn is past its worst.
"Markets are still focusing on the fact that we see some
bottom building ... but they are still not looking through
this," said Ulrich Leuchtmann, head of foreign exchange research
at Commerzbank in Frankfurt.
BUDGET WATCH
Polish industrial output fell in April 12.4 percent, more
than expectations for a 10.8 percent fall, giving more evidence
of the sharp slowdown in the region's largest economy.
"We're now in a situation where net exports will gradually
improve thanks to the weak zloty and maybe because of the
improvement in the (economic) situation in the euro zone," said
Piotr Kalisz, chief economist at Citibank Handlowy in Warsaw.
"On the other hand, domestic demand, both investment and
consumption, will have a negative impact."
In Romania the leu <EURRON=> dipped 0.2 percent to 4.159 to
the euro. But stock markets edged higher with a 1 percent gain
in Prague <> and Warsaw <>, and dealers said shares
would continue to be a main driver for markets.
Strategists also expect a pause in gains and even a turn to
depreciation seen earlier this year. Falling demand for central
European goods has strained the region's export economies --
raising unemployment, hampering banks' balance sheets and
cutting into government revenues.
Earlier this week, Hungary agreed a deal with the
International Monetary Fund and the European Union to let its
budget deficit rise to 3.9 percent of GDP after getting a $25
billion rescue last year.
Later on Wednesday, Romania is also expected to release a
revised convergence report, following its IMF-led loan deal.
Finance Minister Gheorghe Pogea said on Tuesday the country
had no plans to ask for more lenient fiscal conditions in its
IMF deal. []
Poland is set to amend its 18.2 billion zloty budget deficit
target in June or July, and many analysts see the actual full
year deficit at twice that. []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.588 26.669 +0.3% +0.62%
Polish zloty <EURPLN=> 4.368 4.372 +0.09% -5.79%
Hungarian forint <EURHUF=> 277.25 277.6 +0.13% -4.94%
Croatian kuna <EURHRK=> 7.359 7.362 +0.04% +0.08%
Romanian leu <EURRON=> 4.159 4.15 -0.22% -3.48%
Serbian dinar <EURRSD=> 94.31 94.105 -0.22% -5.12%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -3 basis points to 158bps over bmk*
4-yr T-bond CZ4YT=RR +2 basis points to +190bps over bmk*
8-yr T-bond CZ8YT=RR -1 basis points to +269bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -1 basis points to +435bps over bmk*
5-yr T-bond PL5YT=RR -2 basis points to +332bps over bmk*
10-yr T-bond PL10YT=RR +1 basis points to +293bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1434 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 David Stamp/Victoria Main)
