* FX higher on stronger euro, Latvia budget plan
* Hungary ruling party hit in EP elections, markets unshaken
* Poland drops longer-dated bond auction
(Updates with late price rise)
By Dagmara Leszkowicz and Jason Hovet
WARSAW/PRAGUE, June 8 (Reuters) - Central European
currencies rose late on Monday, clawing back some of last week's
sharp losses, after plans for fresh budget cuts in Latvia
increased hope the Baltic state will keep its currency peg.
The Hungarian forint <EURHUF=> led, rising 0.7 percent, also
helped by a stronger euro. Markets shrugged off a weekend rout
of the country's governing party in EU elections after the
ruling Socialists backed Prime Minister Gordon Bajnai.
[]
The Hungarian results had raised prospects the minority
government could be destabilised as it tries to pull Hungary
from recession. [] []
Investors eyed Latvia's efforts, which include heavy budget
cuts, to secure more International Monetary Fund and European
Union aid and avoid bankruptcy while its economy sinks.
The government is prepared to cut a further 500 million lats
($978.9 million) for this year, Prime Minister Valdis
Dombrovskis said on Monday, giving a boost to central European
currencies and Nordic banks. [] []
Worries it would devalue the lat knocked central European
currencies 1-3 percent last week.
"(Latvia) is still very much on the radar screen," said
Martin Blum, an emerging strategist for UniCredit in Vienna.
On Monday, Poland's zloty <EURPLN=> rose 0.4 percent to bid
at 4.528 to the euro by 1527 GMT and reverse earlier losses.
Government bonds firmed on the long-end due to closed short
positions after the Polish finance ministry cancelled plans to
sell longer-dated papers on Wednesday. The ministry said it had
sold enough long papers in auctions the last two months.
Some dealers earlier had said it may have been worried about
demand as central European governments struggle to sell long
maturities in the face of widening budget gaps. []
The Czech crown <EURCZK=> pared losses to rise 0.1 percent
from Friday's domestic close after hovering around 27 to the
euro. Romania's leu <EURRON=> was up in a holiday-shut market.
Stocks in the region ended in the red on Monday losing 1-2
percent to open the week softer after previous gains.
UNDERPERFORMANCE
Blum said Latvia worries, a softer euro and generally poor
news flows from central Europe could lead the region to
underperform global peers this week.
Latvia's central bank sold 237.3 million euros last week in
defence of the lat, more than the previous week. []
Some policymakers in central Europe have warned of spillover
effects from Latvia's problems. Analysts, though, note there is
no fundamental link between this region and the Baltics, but
said Baltic woes could raise central Europe's risk perception.
"Every one is now waiting to see what's going to happen to
Latvia next," said Andrzej Bowtruczuk, a currency trader at BRE
Bank in Warsaw.
Formal budget talks in Latvia take place on Tuesday. The IMF
and EU executive say the Baltic nation must make further
spending cuts before receiving fresh loans.
Central European currencies lost up to a third in the last
year due to sharply slowing or contracting economies, although
they have gained around 10 percent since March in a risk rally.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.915 26.949 +0.13% -0.6%
Polish zloty <EURPLN=> 4.528 4.545 +0.38% -9.12%
Hungarian forint <EURHUF=> 286.14 288.03 +0.66% -7.89%
Croatian kuna <EURHRK=> 7.312 7.345 +0.45% +0.72%
Romanian leu <EURRON=> 4.205 4.217 +0.29% -4.53%
Serbian dinar <EURRSD=> 93.78 93.976 +0.21% -4.59%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +28 basis points to 128bps over bmk*
4-yr T-bond CZ4YT=RR +3 basis points to +143bps over bmk*
8-yr T-bond CZ8YT=RR +24 basis points to +267bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -15 basis points to +368bps over bmk*
5-yr T-bond PL5YT=RR 0 basis points to +300bps over bmk*
10-yr T-bond PL10YT=RR +1 basis points to +261bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1728 CET.
Currency percent change calculated from the daily domestic
close at 1500 GMT.
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(Reporting by Reuters bureaus, Writing by Dagmara Leszkowicz
and Jason Hovet)
