* Leu stable after new govt is rejected by parliament
* Crown gains, investors reverse bets on Thurs cbank move
* Hungary's October rate cut had slim majority - cbank
(Recasts with Romanian govt, Hungary rates, updates market)
By Marton Dunai and Jason Hovet
BUDAPEST/PRAGUE, Nov 4 (Reuters) - The Romanian leu shrugged
off a widely expected rejection of the proposed new government
on Wednesday and was unchanged from morning levels, while other
regional currencies gained, led by the Czech crown.
The crown <EURCZK=> rose on the back of reduced bets for an
interest rate cut this week, adding half a percent by 1333 GMT,
with the Polish zloty <EURPLN=> in tow, gaining 0.4 percent. The
forint <EURHUF=> was 0.1 percent stronger.
The leu <EURRON=> remained within a narrow range as the
proposed cabinet of Prime Minister designate Lucian Croitoru
failed to gain the parliament's approval. []
"The market has already priced in a negative vote," one
dealer with a foreign bank in Bucharest said before the vote.
The leu got some support from the central bank unexpectedly
keeping its main interest rate unchanged at 8 percent on
Tuesday, citing risks stemming from the government crisis that
has threatened Romania's IMF aid deal. []
Central Europe's currencies have given back recent gains in
the past few weeks as investors question a half-year rally for a
region still bogged down by rising budget shortfall, chances for
monetary easing and political uncertainty.
The correction has been led by the Hungarian forint and
Polish zloty.
The forint inched back to positive territory after Hungary's
caretaker government survived a vote on Tuesday that approved
the key figures of the 2010 budget. []
The National Bank of Hungary said its October decision to
trim rates by 50 basis points to 7 percent had a slim majority,
and that most of its rate setters preferred an evenly paced rate
trajectory. []
TO CUT OR NOT
Strategists have said the recent pullback in markets would
be brief and was not a reversal of the rally that has boosted
the forint, zloty and crown around 8 percent since March.
A Reuters poll on Tuesday showed the region's currencies
would return to firming by 2010 and post solid gains in the next
12 months, led by the zloty. []
The Czech crown has been the most solid performer this year
and is the only major CEE currency to gain year-to-date, gaining
0.7 percent on Wednesday to 26.058 per euro.
However, the unit had fallen back as much as 4.5 percent in
the past month on expectations the central bank may still cut
interest rates from a record low of 1.25 percent. []
Analysts, though, expect rates to stay put after recent
currency weakness and an improving economic outlook. On
Wednesday investors cut short crown positions in anticipation of
interest rates on hold at Thursday's policy meeting.
"The market is starting to realise a rate cut is far from
sure," said David Sykora, a dealer with CSOB.
But bonds and rate markets were steady, with fixed income
dealers saying forward rate agreements were pricing in a 50
percent probability for lower main rates.
In Poland, the zloty <EURPLN=> gained 0.6 percent, and bonds
strengthened marginally as markets were trying to figure out the
potential impact of planned changes to the pension system, said
Pawel Bialczynski, dealer at BRE Bank.
Newspapers quoted the Polish finance minister as saying
Poland may halve the amount of money it transfers to private
pension funds to reduce government borrowing. []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.042 26.201 +0.61% +2.73%
Polish zloty <EURPLN=> 4.262 4.279 +0.4% -3.45%
Hungarian forint <EURHUF=> 276.45 276.8 +0.13% -4.67%
Croatian kuna <EURHRK=> 7.27 7.266 -0.06% +1.31%
Romanian leu <EURRON=> 4.297 4.299 +0.05% -6.58%
Serbian dinar <EURRSD=> 93.52 94.22 +0.75% -4.32%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +22 basis points to +111bps over bmk*
7-yr T-bond CZ7YT=RR -3 basis points to +99bps over bmk*
10-yr T-bond CZ10YT=RR -18 basis points to +90bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -6 basis points to +358bps over bmk*
5-yr T-bond PL5YT=RR -4 basis points to +318bps over bmk*
10-yr T-bond PL10YT=RR -4 basis points to +280bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -1 basis points to +543bps over bmk*
5-yr T-bond HU5YT=RR -4 basis points to +491bps over bmk*
10-yr T-bond HU10YT=RR -4 basis points to +426bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1433 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
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(Reporting by Reuters bureaus, writing by Gergely Szakacs and
Jason Hovet; editing by Chris Pizzey)
