* Growing interest rate cut expectations weigh
* Latvia watched, Russia dlr comments provide support
(Adds bonds, quote, updates prices)
By Marius Zaharia and Jason Hovet
BUCHAREST/PRAGUE, June 16 (Reuters) - Central European
currencies gained on Tuesday on the back of a weaker dollar, but
kept within ranges from previous sessions as growing
expectations of further rate cuts in the region subdued gains.
In Poland, a moderate on the central bank's council, Andrzej
Slawinski, said interest rates may be cut further, but already
low rates were an obstacle to deeper easing. []
Czech central bank board member Robert Holman said he may
vote for a rate cut next week, although he generally preferred
rate stability. []
By 1455 GMT, the Hungarian forint <EURHUF=> rose to 280.23
to the euro, up 0.5 percent from Monday's domestic close.
The Czech crown <EURCZK=> added 0.4 percent, while the
Polish zloty <EURPLN=> bid 0.5 percent stronger and the Romanian
leu <EURRON=> was a touch weaker at 4.229.
"Usually when the dollar weakens, the region rallies,
currencies jump by around 1 percent," one dealer said. "But with
rate cuts ahead, a rally is unlikely."
Regional currencies recovered from lows hit earlier in the
session after Russian comments that the world needs new reserve
currencies weakened the dollar. []
Traders said markets were calmer after bouncing in the past
two weeks with worries over Latvia's battle to hold its currency
peg in place in the face of a sharply declining economy.
"It's clear that every investor is very careful," a Budapest
trader said. "I don't think there could be crazy moves, up or
down, any time very soon."
On Tuesday, the Baltic state's parliament was expected to
approve harsh spending cuts that will help release International
Monetary Fund and EU aid to prevent collapse. []
RATE VIEW
Poland's surprise fall in May annual inflation on Monday
boosted chances for a cut next week, while in the Czech Republic
more analysts expect lower rates this summer.
Both countries have shaved more than 200 basis points from
key rates since last summer, bringing them to lows of 1.5
percent and 3.75 percent, respectively.
Bond yields were mixed on Tuesday, with Polish bonds along
with the Czech short-end a tad stronger, dealers said.
Analysts expect a 50 basis point June rate cut in Romania,
but Hungary is expected to hold fire as inflation picks up and
worries remain over financial stability and forint weakness.
Central Europe's export-driven economies have crashed on
falling western demand following years of growth fuelled by
foreign investment and credit. Currencies have lost up to a
quarter of their value in the past year.
Poland and the Czech Republic are still seen better placed
to recover from the downturn, while Hungary and Romania have
joined Latvia in grabbing external aid.
Czech central bank stress tests showed domestic banks, with
high levels of savings and little exposure to foreign currency
borrowing, would hold up under various scenarios. []
But the report showed rising non-performing loans in the
coming year as joblessness rises and companies struggle to win
back lost orders.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.73 26.84 +0.41% +0.09%
Polish zloty <EURPLN=> 4.516 4.539 +0.51% -8.88%
Hungarian forint <EURHUF=> 280.23 281.68 +0.52% -5.95%
Croatian kuna <EURHRK=> 7.262 7.25 -0.17% +1.42%
Romanian leu <EURRON=> 4.229 4.221 -0.19% -5.07%
Serbian dinar <EURRSD=> 93.345 93.19 -0.17% -4.14%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +1 basis points to 128bps over bmk*
4-yr T-bond CZ4YT=RR -2 basis points to +149bps over bmk*
8-yr T-bond CZ8YT=RR +8 basis points to +276bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -1 basis points to +375bps over bmk*
5-yr T-bond PL5YT=RR 0 basis points to +315bps over bmk*
10-yr T-bond PL10YT=RR -5 basis points to +281bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +7 basis points to +838bps over bmk*
5-yr T-bond HU5YT=RR +12 basis points to +773bps over bmk*
10-yr T-bond HU10YT=RR +8 basis points to +687bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1655 CET.
Currency percent change calculated from the daily domestic
close at 1500 GMT.
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(Reporting by Reuters bureaus, writing by Marius Zaharia and
Jason Hovet; Editing by Stephen Nisbet/Victoria Main)
