* FX, stocks firm as dollar weakens vs euro
* Zloty leads but Polish bonds fall on pension proposals
* Leu stable after new govt is rejected by parliament
* Crown gains, investors reverse bets on Thurs cbank move
By Marton Dunai and Jason Hovet
BUDAPEST/PRAGUE, Nov 4 (Reuters) - Central European
currencies firmed on Wednesday, shrugging off parliamentary
rejection of Romania's proposed prime minister and Hungarian
central bank minutes which showed strong backing for rate cuts.
The currencies and stocks in the region are benefiting from
a weakening of the dollar and a rise in appetite for risk ahead
of a U.S. Federal Reserve meeting which is seen reiterating
commitment to ultra-low rates, dealers said.
Wednesday's gains were led by the Polish zloty <EURPLN=>,
which firmed 0.85 percent by 1458 GMT to 4.243.
Poland's finance minister Jacek Rostowski said proposed
changes to cash transfers in the pension system should help slow
the rise in state debt which should not top 55 percent of GDP.
These changes are expected to reduce demand for bonds.
A possible breach of the constitutional limit had been a
concern of investors, but Polish bonds fell on the news and
dealers said yields, which rose 2-5 basis points, could rise
further, mainly at the long end of the curve.
"When the finance ministry takes away parts of the money the
pension funds use to buy bonds, then they will be able to buy
less bonds. This is very negatively perceived by the market,"
one Warsaw-based fixed income dealer said.
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.
But 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. []
Wednesday's rebound lent additional support to the Romanian
leu <EURRON=>, which was flat at 4.298, even though the proposed
cabinet of Prime Minister designate Lucian Croitoru failed to
gain parliaments' approval. []
TO CUT OR NOT
The leu was also buoyed by the central bank's decision on
Tuesday to keep its main interest rate on hold at 8 percent,
citing risks stemming from the government crisis that has
threatened Romania's IMF aid deal. []
The forint <EURHUF=> firmed 0.6 percent to 275.23, helped by
the improved global sentiment, though the minutes of the
Hungarian central bank's October rate meeting showed almost half
of the rate setters wanted a bigger rate cut than the 50 basis
point reduction to 7 percent delivered at the meeting.
"In a way the expectation that there is room left for rate
cuts can even help the forint as it indicates confidence, and
some people may want to build positions before the carry goes
lower," one Budapest-based dealer said.
Another dealer said the forint was unlikely to firm to
ranges beyond the 275 resistance level.
Hungarian government bonds also rose, with yields falling by
20-25 basis points.
The Czech crown <EURCZK=> rose on the back of reduced bets
for an interest rate cut this week, adding 0.6 percent.
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.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.052 26.201 +0.57% +2.69%
Polish zloty <EURPLN=> 4.24 3 4.279 +0.85% -3.02%
Hungarian forint <EURHUF=> 275.23 276.8 +0.57% -4.24%
Croatian kuna <EURHRK=> 7.268 7.266 -0.03% +1.33%
Romanian leu <EURRON=> 4.298 4.299 +0.02% -6.6%
Serbian dinar <EURRSD=> 94.42 94.22 -0.21% -5.23%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +15 basis points to 103bps over bmk*
7-yr T-bond CZ7YT=RR -4 basis points to +99bps over bmk*
10-yr T-bond CZ10YT=RR -18 basis points to +89bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -5 basis points to +364bps over bmk*
5-yr T-bond PL5YT=RR -5 basis points to +322bps over bmk*
10-yr T-bond PL10YT=RR -4 basis points to +281bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -1 basis points to +535bps over bmk*
5-yr T-bond HU5YT=RR -5 basis points to +473bps over bmk*
10-yr T-bond HU10YT=RR -4 basis points to +417bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1558 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,
Sandor Peto and Jason Hovet; editing by Chris Pizzey and Andy
Bruce)
