* Region regains some of the losses earlier in the week
* Chance of Czech rate cut seen higher, crown up
* Romania agrees with IMF on 2010 budget
(Adds bonds, Romania, updates market)
BUDAPEST, Dec 16 (Reuters) - Central European currencies
were stronger on Wednesday, reversing some of the steep losses
seen earlier this week as dealers said a small rebound was on
the cards but a strong dollar still weighed on sentiment.
Investors are closing positions ahead of the year-end which
some dealers said contributed to Monday's sharp weakening.
"The dollar is bullish which is not good for the CEE3," a
Budapest-based currency dealer said.
"I heard concerns over the Austrian banking sector as a
reason for this weakness," another dealer added. "There is a
critical level (support) for the forint at 279, but I think
today we will see a slight positive correction, to maximum 276."
The region's markets are awaiting the outcome of a Czech
central bank rate meeting, due some time after 1100 GMT.
[]
Sixteen of the 19 analysts polled by Reuters forecast stable
rates and interest rate markets price in a 50 percent chance of
a 25 basis point cut, according to dealers.
"Markets signal that the chance of a cut is rather
significant," a Prague based dealer said.
Forward rate agreements <CZK3X6F=> fell 9 basis points over
the last two days and 2-year interest rate swaps <CZKAM6PR2Y=>
shed 2 basis points on Wednesday, Reuters data showed.
Danske Bank, which expects a 25 basis point cut, said in a
morning note that a reduction was less likely after a 1.6
percent weakening of the crown <EURCZK=> on Tuesday. The crown
gained 0.3 percent on Wednesday.
But some analysts said the bank would disregard such a short
term fluctuation of the crown.
The Czech and Polish central banks are seen keeping interest
rates on hold at their last 2009 meetings, eyeing inflation
pressures, but Hungary was predicted to cut rates next Monday.
Hungary's annual gross wages fell by an annual 1.6 percent
in October, data showed on Wednesday, which analysts said
supported further rate easing. []
The Polish zloty <EURPLN=> led gains, adding 0.5 percent,
with the Hungarian forint <EURHUF=> up 0.4 percent.
The Romanian leu was flat on Wednesday, with the market
keenly watching potential news on a governing coalition
agreement later this week.
The Constitutional Court on Wednesday validated President
Traian Basescu for a new five-year term, opening way for talks
to form a cabinet and release IMF aid funds.
Romania may get a 1.5 billion euro IMF loan tranche in
January, its finance minister said on Tuesday.
The country reached an agreement on Wednesday about steps to
reach the 2010 budget deficit target, allowing disbursement of
the aid tranche if it passes Parliament. []
The International Monetary Fund put the Balkan state's 20
billion euro ($29 billion) loan package on hold in November due
to political turmoil.
BONDS
Bond markets were mixed in the region, with yields mostly
higher across the curve by a few points.
"(Polish) bonds are weaker because the zloty topped 4.20 to
the euro, worsening sentiment on the market," said one
Warsaw-based dealer. "Plus we have a switch tender, and this
does not help Polish papers."
Poland's finance ministry offers PS0415 bonds maturing in
2015 in exchange for papers due 2010 at Wednesday switch.
Hungary's market is active mostly on the short ends, a
dealer in Budapest added, but the flows are both ways and yields
are hovering a hair above Tuesday's close.
"We cannot fall during Christmas, I always say that," a
dealer said. "Investors don't want to sell and cannot buy,
typically."
"For supply, we have two more auctions coming, one on
Thursday, and one on Dec. 31," he added. "That's about it for
this year."
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.077 26.205 +0.49% +2.59%
Polish zloty <EURPLN=> 4.197 4.21 +0.31% -1.95%
Hungarian forint <EURHUF=> 277.07 278.07 +0.36% -4.88%
Croatian kuna <EURHRK=> 7.288 7.265 -0.32% +1.06%
Romanian leu <EURRON=> 4.244 4.245 +0.02% -5.41%
Serbian dinar <EURRSD=> 96.261 95.72 -0.56% -7.04%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR -9 basis points to +100bps over bmk*
7-yr T-bond CZ7YT=RR +2 basis points to +100bps over bmk*
10-yr T-bond CZ10YT=RR +1 basis points to +79bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +2 basis points to +386bps over bmk*
5-yr T-bond PL5YT=RR +3 basis points to +338bps over bmk*
10-yr T-bond PL10YT=RR -1 basis points to +300bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -1 basis points to +564bps over bmk*
5-yr T-bond HU5YT=RR +3 basis points to +510bps over bmk*
10-yr T-bond HU10YT=RR -1 basis points to +440bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1129 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
(Reporting by Krisztina Than and Marton Dunai; Editing by Hugh
Lawson and Victoria Main)
