* Bank demand offsets Romanian rate cut to lift leu
* Other FX steady, watching euro/dollar
* Stocks fall, Polish bond yields down before tender
(Adds bonds, stocks, details)
By Jason Hovet
PRAGUE, Jan 6 (Reuters) - The Romanian leu rose to a more
than six-month high on Wednesday, extending gains from the
previous session on demand from local banks selling euros, while
other emerging European currencies were steady.
Several dealers said banks had moved to reduce some of the
hard currency provisions set aside last year, buoyed by a
generally more stable currency and the easing of funding and
political risk in Romania.
The euro sales helped offset a surprise Romanian interest
rate cut on Tuesday that reduces the premium for keeping funds
in leu and raised concerns among some analysts that the currency
may weaken as a result. []
"The market is still long from yesterday's order, so there
are still offers for the leu," said one dealer in Bucharest. "I
don't think it will last, I expect the unit to weaken today."
The leu <EURRON=> added 0.5 percent to 4.16 to the euro by
1043 GMT.
With a new government taking power, the Romanian currency
has outperformed its peers with a 2.5 percent rise since
mid-December although the country still must convince the
International Monetary Fund to unlock part of its aid package.
Most analysts had expected the Romanian central bank to hold
rates steady until February, when expected parliamentary
approval of an austere 2010 budget bill would help secure the
next tranche of the IMF-led aid.
SLOW START
A rally in Central European markets lost steam in the final
months of last year and stocks fell back on Wednesday, led by
the Budapest bourse <>, which fell 0.7 percent but still
hung near a 16-month high.
On bond markets, yields on Polish 5- and 10-year bonds fell,
with dealers saying that bode well for a switch tender later on
Wednesday. Yields fall as prices rise.
While strong investor appetite for emerging market assets
should benefit the region, many strategists say gains in the
first half of the year will be subdued by elections in several
countries that raise political uncertainty.
Budget deficits this year still remain a risk in the region
as it grapples with economic decline.
The Polish zloty <EURPLN=>, tapped as an outperformer, was
little moved on Wednesday along with the Czech crown <EURCZK=>.
Dealers said markets were watching the euro/dollar, which
slipped early after an European Central Bank executive board
member was quoted as saying that the European Union would not
bail out Greece. []
The euro is central Europe's main reference, and currencies
often track euro/dollar moves.
Hungary's forint <EURHUF=> held on the strong side of 270
per euro while bonds were steady after the 2009 budget deficit
came in below target. []
"The better-than-expected outcome, combined with stronger
external balances (reported on December 30), may ease concerns
about the external environment and reduce the risk premium
associated with the Hungarian economy," Goldman Sachs said.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 26.296 26.267 -0.11% +0.08%
Polish zloty <EURPLN=> 4.096 4.091 -0.12% +0.2%
Hungarian forint <EURHUF=> 269.5 268.97 -0.2% +0.32%
Croatian kuna <EURHRK=> 7.291 7.286 -0.07% +0.25%
Romanian leu <EURRON=> 4.16 4.182 +0.53% +1.86%
Serbian dinar <EURRSD=> 96.86 96.89 +0.03% -1.01%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +22 basis points to 93bps over bmk*
7-yr T-bond CZ7YT=RR -1 basis points to +82bps over bmk*
10-yr T-bond CZ10YT=RR -1 basis points to +69bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -1 basis points to +381bps over bmk*
5-yr T-bond PL5YT=RR -3 basis points to +350bps over bmk*
10-yr T-bond PL10YT=RR -2 basis points to +283bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +2 basis points to +578bps over bmk*
5-yr T-bond HU5YT=RR 0 basis points to +510bps over bmk*
10-yr T-bond HU10YT=RR 0 basis points to +444bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1147 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
For related news and prices, click on the codes in brackets: All
emerging market news []
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(Reporting by Reuters bureaus, writing by Jason Hovet, editing
by Patrick Graham)
