* Fx, stocks, bonds ease as China moves to cut liquidity
* Hungary T-bill auction yield drops on cbanker comments
(Updates throughout)
By Sandor Peto and Marius Zaharia
BUDAPEST/BUCHAREST, Jan 12 (Reuters) - Central European
assets weakened on Tuesday as China's measure to cut liquidity
of local banks erased some of the optimism sparked by Monday's
Polish eurobond issue and an improved outlook in Romania.
China's central bank raised banks' reserve requirements, a
reminder global liquidity is likely to tighten this year,
cutting support to emerging markets [], but
investors are still keeping a close eye on central European
assets to pick in the short-term, dealers said.
At 1709 GMT, the Czech crown <EURCZK=>, the Polish zloty
<EURPLN=>, the Hungarian forint <EURHUF=> and the Romanian leu
<EURRON=> were all down 0.3 percent against the euro.
"The weakening was caused by news about the Chinese
measure," one dealer in Budapest said. "But I don't expect a big
weakening ... (Hungarian) macro figures are generally very good,
a big fall is not justified."
Hungarian bonds led losses in the region, after a strong
start this year, with yields rising by up to 20 basis points.
But an auction of three-month Treasury bills attracted
strong demand and the average yield fell to 5.78 percent from
5.91 percent at and auction held last week. []
Traders said the fall reflected expectations for further
cuts in the central bank's 6.25 percent base rate, reinforced by
comments by rate setter Tamas Banfi who said the base rate could
fall below analysts' 5.5 percent forecast. []
Commerzbank's emerging market debt strategist Luis Costa
picked Hungarian 5-year bonds and Polish 10-year bonds as among
the most attractive assets in the region [], adding
a rally in Hungary's paper could go another percentage point.
Regional assets started the year in a positive mood and
extended gains on Monday as Poland placed three billion euros
worth of 15-year sovereign bonds. Romania also plans to issue a
1 billion euros eurobond in Q1. []
HIGH CARRY
Hungary and Romania's more risky markets compensate
investors with much higher yields, but the two central banks are
expected to reduce interest rates further this year.
Romania's annual inflation rate was flat at 4.7 percent in
December, slightly lower than forecast. []
Figures did not affect the leu, which outperformed its peers
since the start of the year, taking advantage of an improved
sentiment following the end of a three-month government crisis
and high interest rates.
Markets were eyeing a likely decision later this week to
approve an austerity 2010 budget, with a deficit target of 5.9
percent of GDP, a key condition to unlock a stalled 20 billion
euros aid deal led by the International Monetary Fund.
Politicians say the budget, on which the leftist and liberal
opposition filed thousands of amendments, asking for a 12
percent hike in pensions, would pass with minor changes.
Regional bourses fell by up to 2 percent, but analysts said
stocks were likely to return to their earlier rising trend.
Erste Bank said in its latest quarterly strategy report that
Romanian equities, after recent underperformance, showed the
highest upside potential.
Polish and Czech stocks showed 20-30 percent upside
potential, while Hungarian equities, after leading the region
last year with a 70 percent rise in main index <>, showed
limited potential, Erste said.
In the wider region, Serbia's central bank left interest
rates unchanged as expected after a month of dinar volatility
[].
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.235 26.15 -0.32% +0.32%
Polish zloty <EURPLN=> 4.076 4.062 -0.34% +0.69%
Hungarian forint <EURHUF=> 268.02 267.29 -0.27% +0.87%
Croatian kuna <EURHRK=> 7.275 7.277 +0.03% +0.47%
Romanian leu <EURRON=> 4.135 4.123 -0.29% +2.48%
Serbian dinar <EURRSD=> 97.21 97.27 +0.06% -1.37%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +2 basis points to 66bps over bmk*
7-yr T-bond CZ7YT=RR +2 basis points to +106bps over bmk*
10-yr T-bond CZ10YT=RR -5 basis points to +97bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +1 basis points to +383bps over bmk*
5-yr T-bond PL5YT=RR +4 basis points to +337bps over bmk*
10-yr T-bond PL10YT=RR +3 basis points to +277bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +7 basis points to +539bps over bmk*
5-yr T-bond HU5YT=RR +22 basis points to +500bps over bmk*
10-yr T-bond HU10YT=RR +18 basis points to +423bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1707 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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All emerging market news []
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World central bank news [] Economic Data Guide <ECONGUIDE>
Official rates [] Emerging Diary []
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(Reporting by Reuters bureaus, writing by Sandor Peto and
Marius Zaharia, Editing by...)
