* Investors cut risk, putting markets on weak ground
* Czech politics weigh, bond auction shrugs off turmoil
* Polish 2-year auction well bid, yields up
(Updates throughout)
By Marton Dunai and Jason Hovet
BUDAPEST/PRAGUE, Sept 2 (Reuters) - Central European
currencies extended their slide on Wednesday as investors cut
riskier assets, and political worries hung on the Czech crown.
Stocks in the region fell sharply with losses of more than 3
percent, outpacing falls in other European markets as investors
questioned whether a months-long rally had gone too far.
The crown was hit by an injunction on Tuesday that gave the
Constitutional Court time to study the legality of a Oct 9-10
early election, throwing the poll into doubt and raising
questions of when a new administration can take power and rein
in a spiralling deficit.
Czech President Vaclav Klaus, Prime Minister Jan Fischer and
the heads of parliamentary parties had agreed to form a working
group to prepare options to change the constitution so as to
secure a quick election, Klaus said on Wednesday. []
The crown <EURCZK=> lost 0.3 percent to 25.72 to the euro by
1403 GMT on Wednesday, moving in line with other regional
currencies as strategists and dealers said markets were shifting
to a wait and see mode to gauge the political outcome.
"We are in a stabilisation phase and the market is awaiting
further news. And the situation in Czech politics is not very
clear," said Murat Toprak, a strategist with Societe Generale.
"Risk aversion has risen and markets are much more
cautious."
Uncertainty did little to damage local funds' appetite, with
demand tripling the offer at a 10-year bond auction, although
dealers said foreign interest was still low. []
"I think it is the same story that local banks mainly are
buying," said one fixed income dealer. "It seems (politics)
isn't the story right now; it seems that just people need the
assets right now."
The Czech 10-year <CZ10YT=RR> firmed by the late afternoon,
quoted at 5.150/4.949 percent, from 5.212/5.010 percent, and has
come down from highs around 6 percent since July.
In Poland, all 2-year bonds on offer at a tender were sold.
Yields remained unchanged at 5.11 percent after the sale, but
were around 14 basis points higher than at the previous 2-year
bonds tender on August 5 as markets shift to expectations the
central bank was finished cutting interest rates. []
RALLY WATCH
Central European assets rallied sharply in the summer
months, boosted by the first signals that the worst of the
economic crisis was starting to pass. Prague and Budapest share
indices jumped more than 20 percent since June 1, while Poland's
zloty has added almost 7 percent in that time.
Analysts have warned a return to moderate growth would be
slow. The region's automotive manufacturers lost support from a
German car scrapping subsidy on Wednesday when funds ran out for
the program that motivated shoppers to buy cars. []
At the same time, governments are all struggling to contain
budget deficits that are seen shooting past the European Union's
3 percent ceiling for the next few years.
A Reuters poll on Wednesday showed currencies roughly steady
over the next three months, with only the zloty -- backed by
Poland's stronger economy -- the only outperformer.
<CEEFXPOLL02> []
The zloty <EURPLN=> fell 0.4 percent to 4.17 per euro.
Hungary's forint <EURHUF=> was off 0.6 percent at 276.1 to the
euro, while Romania's leu <EURRON=> -- the only currency in the
poll seen at weaker levels by December -- was down 0.1 percent
at 4.232 per euro.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.72 25.629 -0.35% +4.02%
Polish zloty <EURPLN=> 4.171 4.155 -0.38% -1.34%
Hungarian forint <EURHUF=> 276.11 274.35 -0.64% -4.55%
Croatian kuna <EURHRK=> 7.34 7.343 +0.04% +0.34%
Romanian leu <EURRON=> 4.232 4.227 -0.12% -5.14%
Serbian dinar <EURRSD=> 93.25 92.97 -0.3% -4.04%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -7 basis points to 138bps over bmk*
4-yr T-bond CZ4YT=RR +1 basis points to +169bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1604 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
(Additional reporting by Krisztina Than and Jana Mlcochova,
editing by Andy Bruce)
