* FX falls as Baltic nerves weigh
* Polish cbanker warns of Baltic spillover threat
* Hungarian industrial output falls sharply, hitting bonds
(Adds comments, stocks, updates prices)
By Jason Hovet
PRAGUE, June 5 (Reuters) - The Polish zloty hit a five-week
low on Friday and central European currencies extended a drop
against the euro with investors watching to see 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 on fears of contagion, and will
drag into next week, dealers said.
Polish central banker Dariusz Filar said Friday there was a
threat the situation could spill into other countries in the
region, which weakened the zloty and Hungarian forint.
[]
The zloty <EURPLN=> slipped 0.7 percent from Thursday's
domestic close to bid at 4.546 to the euro after breaking above
the 4.55 level earlier.
The forint <EURHUF=>, seen as a proxy for risk in the
region, fell 0.7 percent to 288.06 by 1434 GMT. A poor April
industrial output showing also hit the currency and pushed
long-end yields up as much as 30 basis points. []
"(Until) the Latvian case is somehow resolved -- either help
is decided or they reach some kind of agreement with
international financial institutions like the IMF -- we will
continue in a drift," BRE Bank dealer Jakub Wiraszka said.
Latvian Prime Minister Valdis Dombrovskis reiterated on
Friday that no currency devaluation was planned.
He also said markets would calm after the government
completes an agreement with the International Monetary Fund and
European Union on budget cuts and loans to stabilise financing
and receive promised funds. []
At a Warsaw conference, EU Monetary Affairs Commissioner
Joaquin Almunia said the executive was monitoring Latvia and
hoped to avoid spillover, while the European head of the
International Monetary Fund Marek Belka said Latvia's government
proposals were a step in the right direction. []
FINANCE WOES
Hungary and Romania, like Latvia, have already received
IMF-led aid packages to plug financing gaps, and some analysts
fear that if the IMF allowed Latvia to devalue, this could
change aid strategies in other bailout countries.
The Romanian leu <EURRON=> held steady on Friday at 4.216
per euro and the Czech crown <EURCZK=> hit a six-week low,
before rebounding past the strong side of 27.
But central European stocks, especially banks, avoided the
selloff, tracking global peers up as investors cheered better
than expected U.S. employment data that gave hope the world's
biggest economy was past its worst. [] []
Central Europe's export-reliant economies have fallen into
recession, although Poland, with a larger domestic market, is
seen eking out growth this year. Analysts say only a rebound in
European consumption will lift east Europe's economies.
Currencies have stabilised somewhat in the past month after
rebounding around 10 percent in a 3-month risk rally, but many
strategists see a return to weakening in the coming months, with
widening budget deficits and rising joblessness weighing.
Analysts in a Reuters poll on Thursday expected the zloty,
forint, leu and Czech crown to then gain later this year.
[]
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.927 26.93 +0.01% -0.65%
Polish zloty <EURPLN=> 4.546 4.511 -0.77% -9.48%
Hungarian forint <EURHUF=> 288.06 286.2 -0.65% -8.51%
Croatian kuna <EURHRK=> 7.345 7.359 +0.19% +0.27%
Romanian leu <EURRON=> 4.216 4.209 -0.17% -4.78%
Serbian dinar <EURRSD=> 93.966 94.036 +0.07% -4.77%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -6 basis points to 138bps over bmk*
4-yr T-bond CZ4YT=RR -3 basis points to +142bps over bmk*
8-yr T-bond CZ8YT=RR -6 basis points to +254bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -12 basis points to +383bps over bmk*
5-yr T-bond PL5YT=RR -9 basis points to +300bps over bmk*
10-yr T-bond PL10YT=RR -7 basis points to +261bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +14 basis points to +837bps over bmk*
5-yr T-bond HU5YT=RR +18 basis points to +768bps over bmk*
10-yr T-bond HU10YT=RR +22 basis points to +684bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1636 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 Stephen Nisbet)
