* FX falls as Baltic nerves weigh
* Polish cbanker warns of Baltic spillover threat
* Hungarian industrial output falls sharply, hitting bonds
(Adds details, bonds)
By Jason Hovet
PRAGUE, June 5 (Reuters) - Central European currencies, led
by Hungary's forint, extended a drop against the euro on Friday
while investors awaited signals as to whether Latvia will be
able to avoid devaluing its lat currency.
Latvia's struggle to keep the lat pegged to the euro despite
a savage recession in its economy has rattled markets across
central Europe this week, and Polish central banker Dariusz
Filar said there was a threat the situation there could spill
over into other countries in the region. []
The Polish zloty <EURPLN=> slipped 0.5 percent from
Thursday's domestic close to bid at 4.535 to the euro.
The forint <EURHUF=>, seen as a proxy for risk in the
region, fell 0.8 percent to 288.5 by 0920 GMT, also hit by
worsening industrial data.
"With the Baltic situation, everybody is looking for some
direction right now," a central European currency dealer in
Stockholm said.
Latvian Prime Minister Valdis Dombrovskis reiterated on
Friday that no currency devaluation was being planned, and said
markets would calm after the government completes an agreement
with the International Monetary Fund and European Union on
budget cuts and loans. []
Hungary and Romania, like Latvia, have already received
IMF-led aid packages to plug financing gaps, and some analysts
fear the IMF allowing Latvia to devalue could change aid
strategies in other bailout countries.
The Romanian leu <EURRON=> held steady on Friday at 4.21 per
euro and the Czech crown, trading around a two-week low, fell
0.4 percent from its Thursday close to the weak side of 27.
WAITING GAME
Currencies have stabilised somewhat in the past month after
rebounding around 10 percent in a 3-month risk rally, although
flows have been lower than in emerging peers like Asia.
Strategists have said widening budget deficits in central
Europe and rising joblessness would continue to weigh on
economies and currencies, although analysts polled by Reuters on
Thursday estimated currency gains later this year.[]
EU Monetary Affairs Commissioner Joaquin Almunia said on
Friday eastern Europe could face more difficult and volatile
funding in the coming period. []
In Hungary, April industrial output plunged 27.1 percent
year-on-year, data showed on Friday, pushing bond yields up
around 15 basis points on the long end. []
Hungary's government expects the economy to drop more than 6
percent this year, leading a fall in central Europe's
export-driven economies after years of growth funded by
investment and credit.
Danske Bank said the risk in the Baltics and possible
spillover in the region was a reason for market caution.
"We continue to caution that news out of the Baltics could
be a big market mover in other CEE markets and we would
therefore not recommend being long in any CEE currency before we
get clarity about the situation in especially Latvia," the bank
said in a Friday note.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 27.028 26.93 -0.36% -1.02%
Polish zloty <EURPLN=> 4.535 4.511 -0.53% -9.26%
Hungarian forint <EURHUF=> 288.5 286.2 -0.8% -8.65%
Croatian kuna <EURHRK=> 7.363 7.359 -0.05% +0.03%
Romanian leu <EURRON=> 4.21 4.209 -0.02% -4.65%
Serbian dinar <EURRSD=> 94.09 94.036 -0.06% -4.9%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -5 basis points to 139bps over bmk*
4-yr T-bond CZ4YT=RR +4 basis points to +148bps over bmk*
8-yr T-bond CZ8YT=RR +3 basis points to +262bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -4 basis points to +820bps over bmk*
5-yr T-bond HU5YT=RR +6 basis points to +789bps over bmk*
10-yr T-bond HU10YT=RR +12 basis points to +689bps 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 1500 GMT.
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(Reporting by Reuters bureaus, writing by Jason Hovet, Editing
by Ruth Pitchford)
