* FX fall, hit by regulation worries in the EU
* Polish state-owned bank sells euros: market sources
* Romania tender success does not ease pressure on govt
* Polish output slightly lower than forecast
(Updates throughout)
By Marius Zaharia
BUCHAREST, May 20 (Reuters) - Central European currencies
resumed weakening on Thursday afternoon due to regulation fears
in the euro zone, but the zloty recovered part of the losses as
market sources said Polish state-owned bank sold euros.
Investors were worried other European countries may announce
regulation measures following Germany's ban on naked short
selling of some assets on Wednesday and went searching for safer
havens.
Renewed risk aversion meant currencies and stocks quickly
gave up gains made in choppy morning trade.
At 1344 GMT, the Polish zloty <EURPLN=> led losses with a
1.4 percent fall, the Hungarian forint <EURHUF=> was 0.2 percent
lower, the Czech crown <EURCZK=> was 0.3 percent weaker and the
Romanian leu <EURRON=> was flat.
Stocks also fell 2-3 percent and yields were higher.
"It's just a flight from risk," said one dealer in Warsaw.
The zloty pared some of the losses as two market sources
told Reuters Poland's BGK bank sold euros on the spot market
after the unit had fallen about 2 percent.
The finance ministry and the bank both declined comment on
the reports. However, the ministry reiterated it may use sharp
zloty falls to sell euros [].
The zloty was unaffected by April producer prices and
industrial output data, which came slightly below expectations.
Analysts said Thursday's data did not alter their expectations
that the central bank will leave interest rates unchanged for
the time being. []
ROMANIA TENDER SURPRISES
Despite the risk aversion, the region's debt tenders drew
hefty demand as investors see central Europe's debt picture as
better than parts of the euro zone.
Hungary sold 50 billion forints worth of government bonds
with demand almost double the amount on offer and with lower
yields for the three- and five-year paper. []
Romania also saw big demand for its 10-year bond tender when
it sold all the planned amount of 700 million lei at a slightly
lower yield, despite market expectations the government would
reject all bids.
Dealers suspect Romanian state-owned banks snapped up the
paper, doubting foreign investors played much of a role given
uncertainty over the government's ability to enforce austerity
measures. []
The six-old month centrist cabinet has committed to drastic
cuts in wages and pensions, but markets fear it will bow to
mounting social pressure after tens of thousands of people
rallied in central Bucharest on Wednesday.
The IMF deal is the main anchor for investors willing to
finance Romania's ballooning budget deficit.
"I'm very surprised," said Vlad Muscalu, an economist at ING
Bank in Bucharest. "One thought is that state-owned banks have
bought at this yield, another is that pension funds had
unexpected demand."
"But this is very strange ... it does not match the
secondary debt market or neighbouring debt markets."
In Romania's dormant secondary market, a relatively active
5-year bond was trading on Thursday at a yield of 7.45 percent,
compared with an average accepted yield of 7 percent at the
10-year auction.
Auctions for 10-year paper have been rare and the ministry
has usually sold less than planned.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.853 25.779 -0.29% +1.8%
Polish zloty <EURPLN=> 4.187 4.127 -1.43% -1.98%
Hungarian forint <EURHUF=> 282.3 281.68 -0.22% -4.23%
Croatian kuna <EURHRK=> 7.262 7.262 0% +0.65%
Romanian leu <EURRON=> 4.202 4.201 -0.02% +0.84%
Serbian dinar <EURRSD=> 101.81 101.466 -0.34% -5.82%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +15 basis points to 122bps over bmk*
7-yr T-bond CZ7YT=RR +4 basis points to +118bps over bmk*
10-yr T-bond CZ9YT=RR +12 basis points to +114bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +13 basis points to +571bps over bmk*
5-yr T-bond HU5YT=RR +15 basis points to +539bps over bmk*
10-yr T-bond HU10YT=RR +12 basis points to +444bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1644 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaux, writing by Marius Zaharia;
Editing by Ruth Pitchford)
