* Czech crown weaker on election uncertainty
* Most other CEE assets firm on lower risk aversion for now
* Forint leads on stop-loss euro selling ahead of cbank meet
(Updates with Czech polls open, adds quotes)
By Krisztina Than and Marius Zaharia
BUDAPEST/BUCHAREST, May 28 (Reuters) - The crown eased on
Friday, bucking a broad-based rebound in central European assets
as Czech parliamentary elections that may lead to protracted
coalition talks and cause delays to reforms got under way.
Czechs started to vote at 1200 GMT and early results were
expected by Saturday evening. The leftist Social Democrats lead
in opinion polls that also suggest the party will fall short of
a majority, may struggle to find coalition partners and could
even end up in opposition.
Markets fear a tight result could lead to months of
political wrangling.
"This poses the risk that there will continue to be no
strong political consensus, and therefore no strong government
to implement necessary reforms," Societe Generale said in its
weekly emerging market note.
"We believe such an outcome would weigh on Czech financial
markets, as it could lead to a ratings downgrade and in turn
drive up Czech yields. This would also have a negative impact on
the Czech crown and delay the adoption of the euro."
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For stories on the Czech election, see []
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At 1421 GMT, the crown <EURCZK=> traded 0.8 percent weaker.
Czech stocks led regional gains, with the main equity index
<> firming 2.1 percent, but spreads of Czech bonds over
corresponding Bunds rose slightly.
"The impact on bonds would probably be slightly negative if
the left wins," Dalimil Vyskovsky, an interest rate trader at
Komercni Banka, wrote in a morning note.
"The right getting the majority might be short-term positive
but is more likely neutral for government debt instruments."
RATE MEETING IN HUNGARY
Other stocks across the region rose over 1 percent as high
risk aversion caused by debt woes in the euro zone eased, at
least for the time being.
Hungary's forint <EURHUF=> outperformed its peers as
investors positioned themselves ahead of a rate-setting meeting
on Monday. Most analysts in a Reuters poll projected earlier
this week that the central bank would keep rates on hold after
an unbroken run of cuts since July. []
On Friday, some dealers said the forint's rebound may tip
the balance towards a cut while others were sceptical.
"Market volatility, forwards and the increased country risk
all point towards a decision to hold rates," one trader said.
Hungarian bond yields, which had risen about one percentage
point since hitting multi-year lows last month, dropped on
Friday by 10-18 basis points.
In Poland, the zloty <EURPLN=> held on to recent gains
fuelled by a proposal to name top International Monetary Fund
economist Marek Belka as a candidate to head the central bank
after former Governor Slawomir Skrzypek was killed in a plane
crash last month. []
The leu <EURRON=> eased 0.3 percent as local markets
remained wary of possible hurdles to the government's austerity
plans, which are crucial to securing further IMF support.
A confidence vote on the fiscal package is expected some
time next week, when unions also plan a general strike.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.796 25.6 -0.76% +2.02%
Polish zloty <EURPLN=> 4.07 4.069 -0.02% +0.84%
Hungarian forint <EURHUF=> 274.1 275.57 +0.54% -1.37%
Croatian kuna <EURHRK=> 7.264 7.263 -0.01% +0.62%
Romanian leu <EURRON=> 4.168 4.155 -0.31% +1.67%
Serbian dinar <EURRSD=> 102.677 102.703 +0.03% -6.62%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +17 basis points to 137bps over bmk*
7-yr T-bond CZ7YT=RR +3 basis points to +152bps over bmk*
10-yr T-bond CZ9YT=RR +2 basis points to +135bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -1 basis points to +406bps over bmk*
5-yr T-bond PL5YT=RR -3 basis points to +368bps over bmk*
10-yr T-bond PL10YT=RR -2 basis points to +309bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -16 basis points to +552bps over bmk*
5-yr T-bond HU5YT=RR -15 basis points to +511bps over bmk*
10-yr T-bond HU10YT=RR -8 basis points to +450bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1721 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Writing by Krisztina Than and Marius Zaharia; Editing by John
Stonestreet)
