* Forint, stocks, bonds hammered; little moved by cbank
* Other CEE assets gain back some morning losses
* Romania sells less T-bills than planned as expected
(Updates with Hungary cbank, Romania tender)
By Marius Zaharia
BUCHAREST, July 19 (Reuters) - Hungarian assets plunged on
Monday, hit by a premature end in IMF/EU funding talks and
shrugging off a decision to leave interest rates unchanged, but
regional contagion risks were seen muted for the time being.
Economy Minister Gyorgy Matolcsy said he still expected to
reach an agreement with the International Monetary Fund and the
European Union as talks may resume in September, but markets
face uncertainty until then and the forint could hit levels of
around 300 per euro, analysts said [].
The forint <EURHUF=> fell 2.5 percent from Friday's close by
1231 GMT at 288.65 per euro. Regional currencies tracked its
decline in overnight trade, but later recovered.
Hungarian bond yields rose 20-30 basis points across the
curve, while Budapest stocks <> were down 2 percent.
The central bank's decision to keep interest rates flat at
5.25 percent as expected had little market impact
[].
Dealers say central European assets are decoupling from
Hungary's problems as Poland and the Czech Republic have sounder
fundamentals than Hungary and Romania, while the latter has
overcome significant hurdles to keep its own IMF deal on-track.
Yields on Hungary's Eurobond maturing June 2011
<HU013159386=RRPS> shot up to the highest since June 2009, while
five-year CDS spreads rose 58 basis points, according to Markit.
Elsewhere, the Polish zloty <EURPLN=> was down 0.6 percent,
trading at 4.13 per euro, significantly off overnight lows of
4.1540. The Romanian leu <EURRON=> and the Czech crown <EURCZK=>
were virtually flat.
"There are some contagion risks especially to Romania and
Bulgaria via the banking sector, but for now it seems pretty
contained," said Danske Bank's Lars Christensen.
"Furthermore, unlike the Hungarian government, the Romanian
government has gone out of its way to deliver on the promised
fiscal tightening. The IMF and the EU will recognise this and
therefore also go out of their way to protect Romania from any
possible contagion."
In Romania, the finance ministry stuck to its self-imposed
cut-off yield of 7 percent and sold roughly a fifth of what it
planned at a one-year T-bill auction. []
Such a result was widely expected, since the ministry has
either rejected all bids or cut tenders across maturities since
early May, when investors began demanding higher yields in
response to worries over the success of its austerity drive.
Analysts say eventually the ministry will scrap its 7
percent cap and accept higher yields to meet its funding needs.
In Poland, June industrial output data came in significantly
better than expected, highlighting the country's economic
outperformance in the region. [].
INTERVENTION RISK
As rates remained flat, many economists say Hungary's
central bank may use other tools such as FX intervention to help
the forint if it weakens further.
"We are looking to sell EUR/HUF on exaggerated moves (target
around 295)," UniCredit said in a note. "In case of escalated
moves we would not fully rule out some form of central bank
intervention."
Hungary faces no immediate pressure on state finances and
its 2010 position looks safe, but economists agree it needs to
keep the deal led by the International Monetary Fund on track as
an external anchor of credibility.
An immediate risk from the suspension of Hungary's talks
with the IMF and the European Union at the weekend was
depreciation against the Swiss franc, also seen in the zloty.
While currency depreciation against the euro may have helped
Hungary to tame a recession and Poland to avoid one, weakening
against the Swiss franc has caused big pain for these countries
as a large chunk of household loans taken when their economies
were booming were denominated in francs.
On Monday, the forint fell more than 3 percent against the
Swiss franc <CHFHUF=> from Friday to 211.6, while the zloty was
quoted 0.6 percent weaker at 3.0362 <CHFPLN=>.
Cheuvreux noted the forint was now around 38 percent weaker
than levels at which many mortgage loans were taken.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.403 25.432 +0.11% +3.6%
Polish zloty <EURPLN=> 4.13 4.106 -0.58% -0.63%
Hungarian forint <EURHUF=> 288.65 281.54 -2.46% -6.34%
Croatian kuna <EURHRK=> 7.219 7.225 +0.08% +1.25%
Romanian leu <EURRON=> 4.271 4.265 -0.14% -0.79%
Serbian dinar <EURRSD=> 104.78 104.61 -0.16% -8.49%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -14 basis points to 93bps over bmk*
7-yr T-bond CZ7YT=RR -5 basis points to +124bps over bmk*
10-yr T-bond CZ9YT=RR -4 basis points to +138bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -8 basis points to +387bps over bmk*
5-yr T-bond PL5YT=RR -3 basis points to +374bps over bmk*
10-yr T-bond PL10YT=RR -3 basis points to +318bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +24 basis points to +617bps over bmk*
5-yr T-bond HU5YT=RR +19 basis points to +582bps over bmk*
10-yr T-bond HU10YT=RR +15 basis points to +490bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1331 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
For related news and prices, click on the codes in brackets: All
emerging market news []
Spot FX rates
Eastern Europe spot FX <EEFX=> Middle East spot FX <MEFX=>
Asia spot FX <ASIAFX=> Latin America spot FX <LATAMFX=>
Other news and reports
World central bank news [] Economic Data Guide <ECONGUIDE>
Official rates [] Emerging Diary []
Top events [] Diaries [] Diaries Index []
(Reporting by Reuters bureaus, writing by Marius Zaharia,
editing by Stephen Nisbet)
