* Polish cbank head's comments support currency
* Other FX steady but external factors weigh on region
* Bonds broadly weaker
(Adds fixed income, detail)
WARSAW, Nov 24 (Reuters) - The Polish zloty led modest
currency gains in emerging Europe on Wednesday after bullish
comments by central bank governor Marek Belka, but worries over
euro zone debt and tensions in Asia were likely to limit any
upside.
Speaking to reporters on Tuesday after the bank left
interest rates flat for the 17th month running, Belka said the
zloty had "great potential" to appreciate by more than 10
percent, though he gave no timeframe. []
"It looks like a very soft verbal intervention as officials
are concerned over the external factors that could push the
zloty lower," said Jakub Wiraszka, a dealer at BRE bank in
Warsaw.
Poland's key interest rate stands at an all-time low of 3.5
percent, but many economists expect the central bank's Monetary
Policy Council to start raising borrowing costs from early 2011.
Central European currencies have weakened this month amid
concerns that a losing battle against crippling debt on the euro
zone periphery will spread to Portugal and possibly Spain after
first Greece and then Ireland sought emergency funds.
Credit agency Standard & Poor's downgraded Ireland's debt
rating overnight, while escalating tensions between South and
North Korea have also prompted nervous investors to beat a
retreat from riskier assets.
"Emerging markets are being hit ... because of the falling
euro," one Warsaw-based dealer said. "Ireland's downgrade,
worries over other euro zone periphery countries - this is the
(driver) now."
At 1044 GMT the zloty <EURPLN=> was 0.2 percent stronger
against the euro at 3.958. Hungary's forint <EURHUF=>, Romania's
leu <EURRON=> and the Czech crown <EURCZK=> each rose 0.1
percent.
The zloty oscillated around its 100-day moving average and
dealers said breaching this line would mean further weakening,
likely to above 4.00 against the euro.
In Romania, the centrist coalition is expected to approve an
IMF-mandated single wage bill for the public sector. The
government is facing a series of no confidence votes in
parliament, making implementation of its economic reforms more
difficult.
BONDS MOSTLY DOWN
Bond markets were also weaker across the region, driven by
concerns about fallout from the Irish crisis.
Czech 9-year yields were 3 basis points up ahead of the
debut auction of a new 11-year bond <CZ1002851=>.
The ministry has sold less than planned in its last five
auctions since rounding out much of its 2010 borrowing with a
eurobond in September.
"Demand is likely to be weaker than in the previous
auctions, as this bond has a longer maturity and as foreign
investor demand is likely to be restrained by the turmoil on the
government market in Euro peripheral countries," Komercni banka
said.
"(But) we continue to see value in Czech government bonds
against the swap."
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.658 24.693 +0.14% +6.73%
Polish zloty <EURPLN=> 3.96 3.97 +0.25% +3.64%
Hungarian forint <EURHUF=> 275.41 275.55 +0.05% -1.84%
Croatian kuna <EURHRK=> 7.402 7.398 -0.05% -1.25%
Romanian leu <EURRON=> 4.304 4.31 +0.14% -1.55%
Serbian dinar <EURRSD=> 106.59 106.77 +0.17% -10.05%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -7 basis points to 82bps over bmk*
7-yr T-bond CZ7YT=RR 0 basis points to +78bps over bmk*
10-yr T-bond CZ9YT=RR +3 basis points to +100bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +8 basis points to +385bps over bmk*
5-yr T-bond PL5YT=RR +4 basis points to +367bps over bmk*
10-yr T-bond PL10YT=RR +3 basis points to +335bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +5 basis points to +614bps over bmk*
5-yr T-bond HU5YT=RR +4 basis points to +585bps over bmk*
10-yr T-bond HU10YT=RR +6 basis points to +509bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1044 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus; Writing by Dagmara Leszkowicz;
Editing by John Stonestreet)
