* Currency rally continues, led by zloty
* PMI rises in Poland, Hungary, Czech Republic
* Polish bonds up as CPI seen easing in June
(Update throughout)
By Marius Zaharia
BUCHAREST, July 1 (Reuters) - Central European currencies
continued a rally on Wednesday, picking up pace after a shy
start and helped by rising PMI levels in the region even though
the data showed any recovery will be slow.
Polish bond prices ticked up after the finance ministry
estimated inflation likely eased to 3.4 percent in June. Slower
price growth could create more room for monetary easing.
[]
PMI releases on Wednesday showed the region's manufacturing
business crept closer towards the recovery line in June but
still shrank due to a dearth in demand from their main market,
the euro zone. []
The euro zone's factory PMI hit its highest level since
September, while the new orders index hit a one-year high.
[].
Dealers said although the data was not fully comforting,
along with improved global sentiment it still gave a green light
to buy regional assets.
"PMI is rising, and not only in the region, but in the euro
zone as well, which is helpful for the currencies," one dealer
in Bucharest said. "Also the bourses are up and the dollar is
weaker."
By 0946 GMT, the forint <EURHUF=> was 0.7 percent up on the
day to bid at 270.52 to the euro and the crown <EURCZK=> firmed
0.8 percentto 25.805. The Polish zloty <EURPLN=> gained 1.1
percent, while the Romanian leu <EURRON=> added 0.4 percent.
Regional bourses were also stronger by up to 1 percent.
RALLY SEEN HITTING BUMPS
Dealers said the currencies were testing key technical
support levels -- the zloty at 4.4, the forint at 270, and the
crown at 25.80.
"The crown is still strongly overvalued, so any failed
attempts at stronger levels will be a good opportunity to buy
euro/crown," a Prague dealer said.
The rally was started by the forint, which surged over 1.5
percent on Tuesday, a day after parliament approved crucial 2010
tax legislation and helped by better-than-expected first quarter
current account and May producer prices data. []
But a broader firming in emerging Europe was led by the
crown which has gained around 14 percent since mid-February.
However, stronger currencies revived expectations of
interest rate cuts in the region, which also struggles with
banking fragility and the threat of a lat devaluation in Latvia,
which is why some analysts expect the rally to lose steam.
In debt markets, Polish yields fell by 8 basis points after
the CPI estimate, which traders said it would also have a
positive influence on the two-year bonds tender.
"Bond yields fell on expectations that there is still more
room for interest rate cuts. This bodes well for today's tender
too," said Maciej Slomka, chief fixed-income dealer at Pekao.
Hungary bought back 6.8 billion forints worth of government
bonds on Wednesday []. Bond yields fell in line
with forint strengthening.
"A technical breakthrough in bond yields to below 9.50
percent has arrived by today," one Budapest-based trader said.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.805 25.999 +0.75% +3.67%
Polish zloty <EURPLN=> 4.413 4.46 +1.07% -6.75%
Hungarian forint <EURHUF=> 270.52 272.3 +0.66% -2.58%
Croatian kuna <EURHRK=> 7.265 7.27 +0.07% +1.38%
Romanian leu <EURRON=> 4.188 4.206 +0.43% -4.15%
Serbian dinar <EURRSD=> 93.44 93.44 0% -4.24%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -35 basis points to 123bps over bmk*
4-yr T-bond CZ4YT=RR -18 basis points to +160bps over bmk*
8-yr T-bond CZ8YT=RR +13 basis points to +300bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -7 basis points to +404bps over bmk*
5-yr T-bond PL5YT=RR -2 basis points to +325bps over bmk*
10-yr T-bond PL10YT=RR -7 basis points to +285bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -2 basis points to +776bps over bmk*
5-yr T-bond HU5YT=RR -5 basis points to +705bps over bmk*
10-yr T-bond HU10YT=RR -15 basis points to +607bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1246 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Marius Zaharia;
Editing by Ruth Pitchford)
