(Adds details, fresh quotes)
By Jason Hovet and Marius Zaharia
PRAGUE/BUCHAREST Feb 10 (Reuters) - Central European
currencies recovered some of the earlier losses on Tuesday, in
line with the euro, as a relief rally from last week lost steam.
Currencies had rebounded from new lows in the past week as
investors toyed with riskier assets, giving some respite to a
region hard hit by sinking economic outlooks.
But on Tuesday, the euro was hit by a report saying the
Russian Association of Regional Banks had submitted a proposal
to the government to delay loan repayments of up to $400 billion
in corporate debt owned to foreign banks [].
Later in the day, Russia denied the report [],
prompting the euro and other regional currencies to trim some of
the losses. A weaker euro can hit central Europe's currencies
due to investors buying euros to get dollars.
"All regional currencies tracked the weaker euro-stronger
dollar-weaker EMEA trend," one dealer said. "The Russian debt
story was the driver of the markets today."
The Czech crown <EURCZK=> fell 2.2 percent from Monday's
domestic close by 1517 GMT to lead losses in illiquid trade.
Barclays Capital recommended on Monday selling the Czech
crown at its current levels, saying the currency's recent rally
would be short-lived due to poor growth and competitiveness
outlooks. []
Poland's zloty <EURPLN=> fell 0.3 percent, Romania's leu
<EURRON=> shed 0.2 percent, while Hungary's forint <EURHUF=>
lost 0.4 percent.
Investors nerves were stretched also by uncertainty over an
U.S. economic stimulus package, due to be unveiled at 1600 GMT.
"We don't know what the plan will actually include and the
risk of getting it wrong is too high," a trader in London said.
FX RISKS
Hungary central bank's deputy governor said he was concerned
about the exchange rate volatility as the impact of sustained
forint weakness risks to damage loan portfolios.
The inflation outlook would justify further monetary easing,
he said, but the central bank must be mindful of risks to
financial and exchange rate stability [].
Central banks across the region eased their monetary policy
in response to a slump in demand from the recession-hit euro
zone, which has punished central Europe's export-driven
economies, adding to currencies' downward spiral.
The Czech central bank cut interest rates to a historic low
last week but signalled rates were near a bottom. Analysts have
said currency weakness will make the region's central banks more
cautious in cutting rates, but still expect rates to head lower.
Romania's central bank already regrets October's cut in the
minimum reserve requirement for banks' leu liabilities, as it
added weakening pressure on the leu [].
Poland is set to cut again later this month due to falling
industrial output []. However, some analysts see
some risks to this forecast.
"Although the market expects a 50 basis point cut there has
been some talk that due to the zloty falls they will not deliver
it...if there is any news cementing expectations they will cut
rates, bonds should gain," said a bond trader at a Warsaw bank.
Polish bonds were rangebound and dealers said this may
continue until Friday's January inflation data which will give
more clues about future rate moves. In Hungary, bonds extended
their gains ahead of a large coupon payment on Feb 12.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 28.137 27.528 -2.16% -4.92%
Polish zloty <EURPLN=> 4.443 4.432 -0.25% -7.38%
Hungarian forint <EURHUF=> 288.01 286.8 -0.42% -8.49%
Croatian kuna <EURHRK=> 7.42 7.42 0% -0.74%
Romanian leu <EURRON=> 4.24 4.231 -0.21% -5.32%
Serbian dinar <EURRSD=> 92.15 92.15 0% -2.9%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +14 basis points to 161bps over bmk*
4-yr T-bond CZ4YT=RR +87 basis points to +202bps over bmk*
8-yr T-bond CZ8YT=RR +8 basis points to +229bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -2 basis points to +364bps over bmk*
5-yr T-bond PL5YT=RR -1 basis points to +284bps over bmk*
10-yr T-bond PL10YT=RR +5 basis points to +239bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -17 basis points to +909bps over bmk*
5-yr T-bond HU5YT=RR -38 basis points to +799bps over bmk*
10-yr T-bond HU10YT=RR -22 basis points to +642bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1717 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Jason Hovet and
Marius Zaharia, editing by Victoria Main)
