* Forint, zloty fall, global sentiment still crucial
* Bonds market weaker, tracking currencies
* Poland's budget deficit decreased slightly after July
(Adds quote, prices)
BUDAPEST/WARSAW, Aug 17 (Reuters) - The zloty and forint
took the brunt of a hit for central Europe's markets on Monday
with the return of risk aversion, while Hungarian markets
already eyed an expected interest rate reduction due next week.
Stock markets fell sharply with Bucharest <> shedding 5
percent and Prague <> down 3.5 percent to track global peers
down after poor U.S. consumer confidence data raised new doubts
over the strength of economic recovery.
At 1411 GMT Poland's zloty <EURPLN=> fell 1 percent while
Hungary's higher yielding forint <EURHUF=>, seen as one of the
more vulnerable units this week because of poor liquidity before
a four-day holiday weekend, fell 0.9 percent to 274.06 per euro.
"(The forint) can test 275 in the rest of the week," a
Budapest dealer said.
The NBH is due to make an interest rate decision on Aug 24.
It cut rates by a bigger-than-expected 100 basis points last
month and has signalled further significant easing for the rest
of the year to help the economy fight deep recession.
"A 100 basis points rate cut expected by some (analysts)
would be slightly too much in my view. But a 50 basis point cut
has been priced in," the dealer said.
Hungarian bonds regained some ground after falls triggered
by the forint's early slide, although dealers said the market
remained thin.
The zloty, after scaling seven-month highs below 4.10
earlier this month, moved around a key level at 4.20 to the euro
and dealers said the Polish unit may continue falling in the
coming days due to worsening sentiment.
"Risk aversion grew visibly and investors are not keen to
put their capital in riskier assets," said Robert Kesicki,
dealer at Kredyt Bank in Warsaw.
"I think this correction can take a couple of days, but the
zloty should come back to its appreciation trender afterwards."
BUDGET GAPS INCREASE
Czech bonds were a tad weaker, with the Czech 8-year yield
edging up, which dealers said could create interest in the
paper, although markets showed little reaction to the weekend's
budget news. []
The Czech finance ministry will propose a central state
budget deficit of 230 billion crowns ($41.63 billion) next year,
larger than the roughly 200 billion seen earlier, unless
legislative changes are approved before autumn elections.
"We still expect decreasing asset swaps going ahead and will
be watching the Bund curve... There is still speculation of rate
cuts, so we can still be in a mode to buy bonds and to be on the
offer side of interest rate swaps," a fixed income dealer said.
The Czech crown <EURCZK=> gained 0.3 percent boosted by its
position as a funding currency in the region, while Romania's
leu <EURRON=> was relatively steady in afternoon trade.
Dwindling government income and rising joblessness in the
region has widened government budgets. Poland's budget deficit
fell after July to 15 billion zlotys from 16.7 billion zlotys
posted after the first half of the year. []
It had earlier this summer widened its full year target by
50 percent.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.686 25.756 +0.27% +4.15%
Polish zloty <EURPLN=> 4.186 4.144 -1% -1.7%
Hungarian forint <EURHUF=> 274.06 271.53 -0.92% -3.83%
Croatian kuna <EURHRK=> 7.304 7.306 +0.03% +0.84%
Romanian leu <EURRON=> 4.22 4.212 -0.19% -4.87%
Serbian dinar <EURRSD=> 93.07 93.237 +0.18% -3.86%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -6 basis points to 61bps over bmk*
4-yr T-bond CZ4YT=RR -9 basis points to +122bps over bmk*
8-yr T-bond CZ8YT=RR +10 basis points to +262bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +9 basis points to +369bps over bmk*
5-yr T-bond PL5YT=RR +8 basis points to +317bps over bmk*
10-yr T-bond PL10YT=RR +9 basis points to +284bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1615 CET.
Currency percent change calculated from the daily domestic
close at 1500 GMT.
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(Reporting by Reuters bureaux, writing by Balazs Koranyi and
Dagmara Leszkowicz)
