CEE MARKETS-Fx ease, bonds firm on weaker data, crown steadies

BUDAPEST/PRAGUE: Central European currencies eased and bonds extended gains on Tuesday after a batch of weaker-than-expected economic data.

The zloty and the forint eased in tandem by about 0.3 percent against the euro by 1453.

After an initial 0.1 percent easing, the Czech crown steadied, and trading at 27.05 it was firmer by 0.1 percent.

The crown's volatility surged in the past week. It had traded near 27 for most of the past three-and-a-half years, after the CNB launched a cap at that level to fight deflation risks.

Its commitment to keep the weak crown regime expired on Friday and now it can remove the cap any time.

Speculation for a crown rise led to heavy buying of the currency in the past months, but fears that it has been overbought has lifted volatility in crown markets.

"There is a nervous mood in the market. Nobody knows when the central bank will decide (on the end of the intervention regime)," one dealer said. "The central bank is still sitting around the 27.02 level. I don't think they are buying at higher levels."

The yield on Czech 10-year bonds dropped 8 basis points to 0.95 percent. Poland's corresponding yield touched 4-month lows a shade below 3.4 percent.

Expectations for a retreat in inflation in the region helped bonds, one trader said.

Poland was the first in the region to publish March inflation data and the 2 percent annual figure published on Friday was below analysts' 2.3 percent forecast.

Monday's Czech, Hungarian and Polish PMI manufacturing index figures for March showed steady economic growth, but were below expectations.

Hungary's statistics office said on Tuesday that the annual rise in retail sales slowed to 1.2 percent in February from 3.8 percent in January.

"We do not change our economic growth forecast, but negative risks seem to strengthen," said Peter Virovacz, analyst of ING in Budapest about the data in a note.

Uncertainty over the future of troubled food and retail group Agrokor weighed on Croatian equities ahead of Wednesday's parliament discussion of a bill aimed at protecting the economy against the failure of big firms.

The Zagreb bourse's main index fell 1.6 percent, with Agrokor unit ice cream maker Ledo leading the decline, falling by 14 percent.