* Fitch downgrade hits Hungary markets, parlt backs budget
* Prague stocks at 7-month high on year-end rally
* Romania govt survives 4th no-confidence motion this yr
(Recasts with Hungary downgrade)
PRAGUE, Dec 23 (Reuters) - The forint dropped half a percent
and the Budapest stock market lost a similar amount on Thursday
after Fitch downgraded Hungary's rating on worries over its
medium-term budget outlook.
The cut to BBB-, one notch better than speculative grade,
came before Hungary's parliament voted its approval of the
country's 2011 budget later on Thursday.
The government has pledged to become next year the first
since Hungary joined the European Union in 2004 to cut the
fiscal gap below 3 percent of gross domestic product (GDP),
making it a top performer in the 27-member bloc.
But analysts have warned the budget takes advantage of
one-off revenues and forgoes tough spending cuts. Markets are
looking toward February, when the government plans to unveil
reforms for the coming years. []
The forint <EURHUF=>, after edging up in earlier trade, fell
as much as 0.7 percent and bid down half a percent on the day at
277.74 to the euro by 1236 GMT, shortly after the downgrade.
Budapest stocks <> fell 0.8 percent on the day.
"The downgrade is negative as Hungary is now perched
precariously on speculative grade," said Kieran Curtis, emerging
debt fund manager at Aviva in London, adding there was still a
risk of further cuts by ratings agencies.
"Hungary will fall out of these indices if its ratings go to
junk and a lot of index fund managers will have to sell their
Hungarian debt. For an economy as small as Hungary's the impact
on its borrowing costs could be large."
Hungary is coming off an IMF/EU aid deal and plans to issue
foreign bonds worth 4 billion euros "as soon as possible" next
year to refinance expiring debt and repay a part of aid -- which
will be a strong test of investor confidence.
It sold on Thursday 40 billion forints in 12-month bills at
a yield of 6.2 percent, up from 6.10 percent at an auction
earlier this month. []
OTHER MARKETS CALMER
Other central European markets were mostly steady going into
the holiday period, with Prague stocks <> up for a fifth
straight session and hitting a new seven-month high. The bourse
has gained 11 percent this month to lead the region in a
year-end global stocks rally fuelled by better growth outlooks.
"There is a little window-dressing toward the end of the
year, mainly an adjustment in some prices mainly in lower-liquid
stocks," said Viktor Reischig, a trader at Prague broker Patria
Finance.
Romania's leu <EURRON=> was steady around 4.28 per euro,
unchanged after the government survived, as expected, its fourth
no-confidence vote this year -- and second in a week -- as the
opposition fights the cabinet's austerity drive. []
Parliament approved on Wednesday an austere 2011 budget that
will further cut the recession-hit country's fiscal gap, a key
requirement for maintaining a 20 billion euro IMF aid package.
The Polish zloty <EURPLN=> inched up 0.2 percent within
recent ranges after the Polish central bank sounded a more
hawkish tone on Wednesday, adding to expectations that it will
be the next to start tightening policy in the region.
In the Czech Republic, which will not likely raise interest
rates until later next year, the crown <EURCZK=> dipped 0.1
percent to a new five-month low, bidding at 25.292 per euro.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.292 25.272 -0.08% +4.06%
Polish zloty <EURPLN=> 3.978 3.986 +0.2% +3.17%
Hungarian forint <EURHUF=> 277.74 276.35 -0.5% -2.66%
Croatian kuna <EURHRK=> 7.387 7.391 +0.05% -1.05%
Romanian leu <EURRON=> 4.287 4.283 -0.09% -1.16%
Serbian dinar <EURRSD=> 106.14 107.17 +0.97% -9.67%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -1 basis points to 91bps over bmk*
7-yr T-bond CZ7YT=RR -1 basis points to +83bps over bmk*
10-yr T-bond CZ9YT=RR +6 basis points to +98bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1337 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, editing
by Stephen Nisbet)
