* CEE currencies up, helped by euro, stocks mixed
* German approval of safety net package could also help
* Bonds mixed, fx jitters blur interest rate outlook
(Updates prices, government bonds)
By Krisztina Than and Sandor Peto
BUDAPEST, May 21 (Reuters) - Central European currencies
firmed on Friday, helped by the euro strengthening against the
dollar and the Swiss franc, but a sell-off on U.S. and Asian
stock markets weighed on sentiment.
Germany's lower house of parliament approved on Friday its
share of a $1 trillion safety net for troubled euro zone states.
Some dealers said before the package was approved that it
could support investor sentiment that has been battered by the
euro zone debt crisis, Germany's ban on naked short selling this
week and growing market fears of more stringent financial
regulation.
"I think there could be a strengthening today on the U.S.
dollar correction ... and the forint might firm to around 278
versus the euro," a Budapest currency dealer said.
"And then if the Germans pass the rescue package, that could
be forint-supportive as well."
Another dealer said the Hungarian forint would likely trade
in tight ranges around 280 to the euro as a plunge in U.S. and
Asian stock markets was limiting an improvement in sentiment.
At 1003 GMT, the Polish zloty <EURPLN=> was up 0.4 percent
at 4.134 against the euro, the Czech crown <EURCZK=> gained 0.3
percent to 25.73, while the forint <EURHUF=> and the Romanian
leu were 0.1 percent higher at 280.11 and 4.196 respectively.
Danske Bank said in a note that the zloty was fundamentally
undervalued at current levels and should recover.
"Given the strong sell-off in the zloty, the PLN is now
trading at fundamentally undervalued levels relative to
long-term fair value levels ... Hence, if the zloty is trading
above 4.21 against the euro, we recommend selling EUR/PLN."
Stock markets were mixed with Budapest <> down 0.7
percent at 1007 GMT, Prague <> up 1.3 percent and Warsaw up
0.8 percent <>.
BOND MKTS WATCH FX
Government bond markets were also mixed as this month's
currency jitters in Europe have blurred the outlook for interest
rate moves.
Czech yields continued to rise. The spread between bond
yields and corresponding swaps have widened in recent months
mainly due to a drop in swap rates caused by some dovish
comments from central bank rate setters.
"The risk is that there could be a sudden sell-off on the
bond market, which could make the spread even much wider," CSOB
analysts said.
Hungarian bond yields were mostly flat, though they dropped
slightly from overnight highs as the forint rebounded.
"Comments from the incoming government on a higher deficit
and attacks against the central bank are overshadowed by the
zloty and the euro/dollar (movements), but may cause concern
later," one trader said. []
"Short-term swaps are pricing out a (central bank) rate cut,
though longer swaps have risen more due to the (market)
uncertainty," the trader added. "FRAs (forward rate agreements)
still price in a small rate cut in three months and a hike in
12-18 months ... I expect a volatile market and slow (price)
weakening."
Despite increased risk aversion, the region's debt tenders
on Thursday drew solid demand as investors see central Europe's
debt picture as better than some other parts of the euro zone.
Hungary sold 50 billion forints of bonds. []
Romania surprised markets by selling the planned 700 million
lei ($206 million) of 10-year treasury bonds in full, with an
average accepted yield of 7 percent, barely changed from a
tender in April. []
Analysts had expected the finance ministry to reject all
bids after two debt tenders failed earlier this month on fears
the government would be unable to see through planned wage and
pension cuts in the face of mounting opposition.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.73 25.816 +0.33% +2.29%
Polish zloty <EURPLN=> 4.134 4.149 +0.36% -0.73%
Hungarian forint <EURHUF=> 280.11 280.51 +0.14% -3.48%
Croatian kuna <EURHRK=> 7.267 7.259 -0.11% +0.58%
Romanian leu <EURRON=> 4.196 4.199 +0.07% +0.99%
Serbian dinar <EURRSD=> 101.95 101.75 -0.2% -5.95%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -3 basis points to 118bps over bmk*
7-yr T-bond CZ7YT=RR +2 basis points to +131bps over bmk*
10-yr T-bond CZ9YT=RR +3 basis points to +120bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR 0 basis points to +570bps over bmk*
5-yr T-bond HU5YT=RR +4 basis points to +539bps over bmk*
10-yr T-bond HU10YT=RR +3 basis points to +349bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1203 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Krisztina Than/Sandor Peto; Editing by Kevin
Liffey and Susan Fenton)
