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Currencies firm, investment plunge seen temporary

BUDAPEST: Central European currencies steadied on Wednesday, shrugging off a plunge in investments in Hungary and Poland

August 31, 2016

imageBUDAPEST: Central European currencies steadied on Wednesday, shrugging off a plunge in investments in Hungary and Poland as US job figures failed to give more impetus for a Federal reserve interest rate hike.

The forint, trading at 309.75 agasint the euro at 1403 GMT, regained all the ground lost in early trade after Hungarian figures showed the biggest fall in investments since at least early 2012.

Hungarian stocks hardly moved and the forint is still near its strongest levels since early March.

The zloty, even though it firmed 0.2 percent, remains near the four-week lows it hit on Tuesday after Poland reported its biggest contraction in investments for almost for years.

The volume of investments in Hungary plunged by 20.3 percent in annual terms in the second quarter, a much bigger decline than the 4.9 percent fall in Poland.

A slowdown in the absorption of European Union development funds was a key cause of the fall in both countries.

Hungary's and Poland's 5- and 10-year government bond yields rose by 2-3 basis points

"(Hungary's government bond) auction (on Thursday) is the next key point, and then Friday's US (payrolls) figures," one Budapest-based fixed income trader said.

The impact of outside factors, such as expectations for a rise the US rates, which will make high-yielding eastern European assets relatively less attractive, has weighed on the region's currencies.

The US ADP National Employment Report on Wednesday showed US private employers adding 177,000 jobs in August, slightly above the 175,000 forecast by a Reuters survey of economists. Other jobs data for August due on Friday will be a consideration for when the Fed raises rates.

Equities hardly moved in the region ahead of the US payrolls number.

Second-quarter economic output figures released in Croatia, Slovenia and Serbia underpinned that growth in the region outpaces the euro zone, even in the former Yugoslav member states which underperformed in the region in the past years.

The Serbian central bank intervened in the market to stem the dinar's gains.

But Ljubljana's stock index shed 2.1 percent due to a plunge of the shares of reinsurer Sava which started to trade ex dividend on Wednesday.

There are still worries, though, that growth may slow down and low or negative inflation rates in the region fuel expectations for monetary easing.

Polish priced fell 0.8 percent in annual terms in August, slightly less than analysts' 0.9 percent forecast.

Czech central bank board member Tomas Nidetzky called for a jump in wages in an interview with Reuters.

Czech wages are relatively high in the region, but are still

at around only one third of German levels, and central Europe has lost millions of workers in the past years, who moved West.

Copyright Reuters, 2016