* Zloty leads FX down on poor report on banks
* Zloty, Polish bonds hit by worries over 2010 deficit
* Romanian inflation eases, supports more rate cuts
(Updates throughout)
By Dagmara Leszkowicz and Marius Zaharia
WARSAW/BUCHAREST, Sept 10 (Reuters) - Regional currencies
fell on Thursday, led by the Polish zloty, hit by negative
reports from ratings agencies about Polish and Czech banks,
while Polish bonds continued to be hit by budget woes.
Standard & Poor's warned the Polish banking sector was
vulnerable to credit risks because of the slowing economy
[], while Moody's said its outlook for Czech banks
remained negative [].
"S&P comments on Polish banks were nothing new, but the
EURPLN market was caught too short and it triggered stop
losses," one dealer said.
By 1333 GMT, the zloty <EURPLN=> fell 1.1 percent from the
previous domestic close and the Hungarian forint <EURHUF=>
weakened by 0.6 percent.
The Czech crown <EURCZK=>, seen as a safe haven for regional
assets and the Romanian leu <EURRON=>, the most stable currency
in the region since March, were less hit. Dealers also noted the
region's link with the euro-dollar was broken.
Also, the region was hit by continuous budget woes, dealers
said. On Wednesday, the Czech government approved a 2010 budget
draft with the widest-ever deficit, fuelled by the crisis and
the refusal of the main political players to cut spending before
an election. []
Poland's government approved a budget bill for 2010 on
Tuesday with the highest deficit in 20 years, news that
triggered poor results at a bond auction on Wednesday and
depressed regional sentiment on Thursday as well.
Hungary kept its 2009 budget forecast unchanged
[] after on Wednesday it approved the budget draft
for next year which includes spending cuts of 400 million euros.
Markets fear IMF programmes and euro adoption goals will
force governments to tighten fiscal policies, which will drag on
economic recovery.
RATE PROSPECTS
Rate cuts expectations in Hungary and Romania are also a
weakening factor for currencies, with the Romanian central bank
governor saying on Wednesday the bank would have enough room for
monetary policy moves in the next four months [].
Data showing Romania's inflation slowed to 5 percent last
month from July's 5.1 percent, below market expectations of 5.2
percent, supported that view [].
Stocks in the Central and Eastern Europe were firmer, due to
signs of a better global economic outlook, but Polish bond
yields rose 4-6 basis points due to the budget worries.
In Poland's first bond tender since the budget approval the
finance ministry sold 1.1 billion zlotys in 5-year bonds, with
demand half that in a similar tender on Aug. 12. []
Hungary's bond auctions, by contrast, drew healthy demand
on Thursday and the government sold 47 billion forints worth of
bonds, 5 billion forints more than planned. []
"The amounts are lower (than in Poland) and the yields are
higher," one trader said.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.47 25.462 -0.03% +5.04%
Polish zloty <EURPLN=> 4.158 4.112 -1.11% -1.03%
Hungarian forint <EURHUF=> 272.52 270.83 -0.62% -3.29%
Croatian kuna <EURHRK=> 7.329 7.339 +0.14% +0.49%
Romanian leu <EURRON=> 4.252 4.245 -0.16% -5.59%
Serbian dinar <EURRSD=> 93.27 93.3 +0.03% -4.06%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +2 basis points to 194bps over bmk*
7-yr T-bond CZ7YT=RR +1 basis points to +182bps over bmk*
10-yr T-bond CZ10YT=RR -1 basis points to +178bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +1 basis points to +397bps over bmk*
5-yr T-bond PL5YT=RR 0 basis points to +343bps over bmk*
10-yr T-bond PL10YT=RR -2 basis points to +286bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -8 basis points to +650bps over bmk*
5-yr T-bond HU5YT=RR +7 basis points to +574bps over bmk*
10-yr T-bond HU10YT=RR +10 basis points to +488bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1633 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Dagmara Leszkowicz,
editing by Andy Bruce)
