Hungary's forint hits new low vs Swiss

BUDAPEST: Emerging European currencies were mixed on Monday and local bonds weakened due to markets' nervousness over Greek debt, driving the Hungarian forint to a new low against the Swiss franc early in the day.

In the absence of local data, East Europe's markets focussed on Greece, where lawmakers began debating the measures to raise taxes and cut spending that international lenders demand in order to keep the economy afloat with fresh funds.

"The story continues to be Europe, Greece, and rising risk aversion," an FX dealer in Budapest said.

He said the forint was stuck in a tight range between 268.20 and 269.50 versus the euro and any break of these key levels would give the currency new direction.

It hit a new low against the Swiss franc at 227.90 earlier on Monday, which increases the burden on Hungarian households who hold a huge amount of Swiss-franc denominated loans. At 1004 GMT the forint traded at 227.20 to the franc.

With no local data to be published on Monday, the Polish zloty was also seen fluctuating in line with global sentiment.

"The zloty could finish the day above 4.00 against the euro, but we do not expect it to breach the nearest (zloty support)level of 4.05," Bank BPH analysts wrote in their daily research note.

By 0956 GMT the Polish zloty had eased a third of percent to the euro, with the Hungarian forint down 0.2 percent, the Czech crown 0.1 percent stronger and Romania's leu flat.

Romania's currency is particularly exposed because Greek banks account for about a sixth of assets in its banking system.

The leu's recent losses have prompted several foreign banks -- including JP Morgan, Citi and UniCredit -- to recommend buying the unit which, along with rumours of central bank intervention, has provided some support, dealers said.

"For the moment the leu seems supported by external confidence," one Bucharest-based dealer said. "I'm guessing 4.20-4.23 would be a trade range for the week."

BONDS FEEL GREEK PINCH

The region's bond prices declined on Monday as investors sold riskier assets in fear of a potential default by Greece.

Polish yields rose by about 5 basis points across the curve from Friday, and Hungarian yields rose marginally as well.

A parliamentary ballot in Greece on the framework austerity package is expected on Wednesday, with another vote on Thursday on specific implementation steps.

A Greek minister on Monday warned of "catastrophe" if the 28 billion euro ($40 billion) package were blocked.

"You can see a tendency of risk aversion. Investors are selling all European bonds but the German ones and buy US bonds, which hits emerging markets," a local bond trader said. "The next three days will be nervous until the final vote in Greece."

Hungarian bonds ignored a pledge by Chinese Premier Wen Jiabao on Saturday that China would buy a "certain amount" of Hungarian bonds, a Budapest dealer said.

Wen also said he was "still confident" Europe can overcome the debt crisis and added China would be a long-term investor in Europe's debt market.

Copyright Reuters, 2011