* IMF approves Romania loan tranche, Hungary budget out
* Romania sells more T-bills than planned, demand strong
* Market holidays in Poland, Hungary; focus on U.S. QE2
(Updates prices, adds Romania T-bill, Czech forecasts)
By Jason Hovet and Robert Mueller
PRAGUE, Nov 1 (Reuters) - Demand rose at a Romanian treasury
bill sale on Monday thanks to the IMF's positive assessment of
the country's aid deal, while emerging Europe was mixed in
holiday trade with eyes fixed on the U.S. Federal Reserve.
Hungary's forint added 0.2 percent in subdued trading
following the weekend release of a budget for 2011 that aims to
cut the deficit to below 3 percent of GDP. []
While trading in the region remained quiet due to market
holidays in Hungary and Poland, dealers said investors were
positioning for a likely renewal of asset-buying from the U.S.
Federal Reserve with a new quantitative easing (QE2) programme.
Prospects of this have weakened the dollar and encouraged
investors to buy up higher-yielding emerging market assets.
The Czech crown, central Europe's top performer in 2010,
rose 0.4 percent and firmed near the 24.500 level following a
higher Finance Ministry forecast on economic growth for this
year and a solid Purchasing Managers' Index (PMI) reading.
[] []
"People are happy to play the QE2 trade again, selling
dollar and investing in emerging (markets) after some guys took
profits last week," a Prague dealer said.
Analysts have said a smaller QE2 figure than generally
expected -- an amount of at least $500 billion of Fed asset
purchases has been cited in markets -- could lead to a
correction in high-yielding assets.
Meanwhile investors' appetite for risk was also boosted by a
strong Chinese PMI reading. []
But the Polish zloty underperformed its regional peers,
giving up 0.2 percent after last Friday's warning from Fitch
ratings agency that the country needs deep reforms in order to
avert a credit-rating downgrade. []
STRONG DEBT DEMAND IN ROMANIA
Romania sold 1.46 billion lei ($478.2 million) in six-month
treasury bills compared with a planned 1 billion lei, with the
average yield unchanged at the 7 percent ceiling the ministry
has kept since May. []
Demand rose after the International Monetary Fund agreed to
release the next tranche of a 20 billion euro bailout deal to
Romania, easing financing concerns. Analysts said, though, the 7
percent yield cap would continue to come under pressure.
The International Monetary Fund's Romania mission chief
Jeffrey Franks said Romania was on track, though wage pressures
continued to pose a threat and the next loan tranche would be
tied to adoption of the 2011 budget. []
The leu <EURRON=> dipped 0.4 percent to 4.28 per euro.
Ulrich Leuchtmann, head of FX research at Commerzbank, said
prospects of a recovering economy could give more of an impetus
to markets in Romania, but that political risk would still be
the main driver in the coming months.
"It is risky for countries to play with fiscal conditions of
the IMF, so the political stabilisation we have seen is a
promising thing," he said. "(But) Romanian politics is always
good for a surprise."
The deal is crucial for maintaining Romania's credibility
among international investors, and Bucharest is expected to seek
a fresh agreement once the existing one expires in March.
In Hungary, reaction was muted after the centre-right Fidesz
government submitted the 2011 budget to parliament on Saturday
with the lowest deficit target since European Union entry in
2004.
The plan taps into new taxes on business sectors such as
banking and energy, while reducing the size of the government.
The government will also transfer no taxpayer payments into
private pension funds for the next 14 months.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.492 24.588 +0.39% +7.46%
Polish zloty <EURPLN=> 3.97 3.962 -0.2% +3.38%
Hungarian forint <EURHUF=> 270.79 271.27 +0.18% -0.16%
Croatian kuna <EURHRK=> 7.32 7.345 +0.34% -0.15%
Romanian leu <EURRON=> 4.284 4.267 -0.4% -1.09%
Serbian dinar <EURRSD=> 107.22 107.06 -0.15% -10.58%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -8 basis points to +79bps over bmk*
7-yr T-bond CZ7YT=RR -1 basis points to +96bps over bmk*
10-yr T-bond CZ9YT=RR -1 basis points to +112bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1524 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
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(Reporting by Reuters bureaus, writing by Jason Hovet,
editing by Catherine Evans, John Stonestreet)
