* Forint leads FX gains but remains most vulnerable in CEE
* Stocks gain; Bucharest and Prague hit May peaks
* Romania debt sale goes smoothly, yield down
(Updates throughout)
By Marius Zaharia and Jason Hovet
BUCHAREST/PRAGUE, Jan 4 (Reuters) - The Hungarian forint
rose against the euro on Tuesday thanks to a weaker Swiss franc,
and a rally in central European equities kept up steam, sending
Bucharest and Prague to eight-month highs.
Central European currencies benefited as investors returned
to higher-yielding emerging markets.The Swiss franc, broadly
weaker against the euro and the dollar as the rising risk
appetite dampened its safe haven appeal, hit a two-week low
against the forint <CHFHUF=>.
The Swiss franc is closely watched by Hungarian investors as
households there hold a high proportion of loans in the
currency.
At 1506 GMT, the forint <EURHUF=> gained 0.7 percent to bid
at 275.75 to the euro. It has gained almost 2 percent against
the Swiss franc already this week.
"The euro's gains are especially spectacular against the
Swissie, which benefits the forint," one Budapest trader said.
Stock markets extended an end-of-year rally on more bets that
regional economic growth will pick up. Romanian shares <>
were 1 percent higher and Prague's benchmark index <> was
up the same, both hitting levels not seen since May last year.
Upbeat Czech and Polish manufacturing data had added to
optimism on Monday about the outlook for the region, which
lagged other emerging markets last year due to its close links
to the debt-ridden euro zone and the impact of government
spending cuts.
Despite a good start, analysts have said the forint could
see volatility if the government does not deliver spending cuts
it has promised to announce in February.
Budapest stunned investors last year when it moved to break
ties with the International Monetary Fund, and to seize private
pension assets and introduce temporary taxes on business to help
pay down debt.
Investors have much more confidence in finances in the Czech
Republic, where the state beat finance ministry forecasts with a
lower than planned 2010 central budget gap.[]
"We think it is useful to reiterate our call for a higher
CZK/HUF in 2011," BNP Paribas said in a note.
"We have serious doubts that the Hungarian government will
come up with anything meaningful in February, which may well
spark another round of bearishness later on in Q1."
The Czech crown <EURCZK=> was up half a percent, bidding
around its 55-day moving average of 24.87 per euro, while the
Romanian leu <EURRON=> inched up and the Polish zloty <EURPLN=>
added 0.2 percent.
Dealers said the crown would find resistance around 24.800,
a level that provided support last month when the currency was
trending weaker.
ROMANIA DEBT SOLD
In Romania, the state sold a planned offer of 1-year bills
at a lower yield than a week ago. []
Buyers have been keener at recent Romanian tenders,
reflecting improved liquidity and renewed market confidence
after the government pushed a deficit-cutting budget through
parliament and survived two no-confidence votes in December.
The ministry has managed to sell all or more than planned at
tenders since ditching a 7 percent yield cap in November.
Polish bonds resumed their declines, with yields up on
rising rate hike expectations and a possible negative impact
from changes to the pension system announced last week.
The finance ministry said on Monday inflation probably
jumped last month, prompting the most dovish rate-setter to say
that an interest rate rise may be necessary. []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2011
Czech crown <EURCZK=> 24.874 25.017 +0.57% +0.51%
Polish zloty <EURPLN=> 3.941 3.949 +0.2% +0.43%
Hungarian forint <EURHUF=> 275.75 277.8 +0.74% +0.81%
Croatian kuna <EURHRK=> 7.386 7.383 -0.04% -0.08%
Romanian leu <EURRON=> 4.271 4.273 +0.05% -0.89%
Serbian dinar <EURRSD=> 106.48 106.1 -0.36% -0.52%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -11 basis points to 95bps over bmk*
7-yr T-bond CZ7YT=RR -1 basis points to +89bps over bmk*
10-yr T-bond CZ9YT=RR +11 basis points to +107bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -13 basis points to +652bps over bmk*
5-yr T-bond HU5YT=RR -10 basis points to +589bps over bmk*
10-yr T-bond HU10YT=RR -11 basis points to +488bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1609 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
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(Reporting by Reuters bureaus, Writing by Marius Zaharia and
Jason Hovet; Editing by Hugh Lawson, Susan Fenton, John
Stonestreet)
