CEE FX shed morning gains

PRAGUE: Central European currencies shed some of their early morning gains on Thursday and dealers said optimism tied to Greece's adoption of austerity measures needed to avoid default was going to be short-lived.

The euro rallied to a three-week high against the dollar, swept higher by a wave of stop-loss buying after Greek lawmakers passed the framework of a five-year belt-tightening campaign required for it to continue receiving international aid.

The move boosted investors' belief a second savings package would also be passed on Thursday, which traders said could lead to renewed enthusiasm among investors willing to plow into more risky assets for higher yields.

But cautiousness on the market was apparent.

"Markets see the Greek situation is like the lost battle was only postponed till later," a Prague-based dealer said. "The optimism is very cautious," he added.

Romania's leu slipped to reach a one-week low against the euro on Thursday after trading rangebound for most of the session on continued Greek-related worries.

"Trading is choppy," said one trader in Bucharest.

"The leu is weakening on end-of-month bad loan provisions. Some foreigners are also buying euros, but aggressively."

Another dealer said situation in Greece continued to put pressure on the regional currencies even after parliament endorsed a key austerity package the previous day.

"Not many are yet convinced Greece would really implement the proposed austerity measures."

Concerns over the impact of Greece's debt crisis sent the leu to its lowest in more than five months last week. Greek subsidiaries make up a sixth of assets in the Romanian banking system.

Hungary posted a record large current account surplus of 787 million euros in the first quarter after a revised surplus of 360 million euros in the fourth quarter of 2010.

Analysts' median forecast was for 815 million euro surplus in the first quarter of 2011.

The forint firmed with the help of technical breaks and improved risk sentiment, but it had given up gains later in the day to trade 0.14 percent down at 265.4 per euro by 1120 GMT.

A dealer said the currency had bottomed out at the level of 265 to the euro, and key levels to watch were 264.50 and 263.20. At the other end, the key resistance was 266.60, he said.

In the Czech Republic, the crown hit a week-high of 24.22 to the euro, but shed some of the early gains to trade at 24.31 by 1103 GMT.

Coalition parties have reached a deal to change some policies and the cabinet's makeup, warding off a possible collapse of the administration.

The Prague-based dealer said he expected the unit to move in the 24.00-24.450 per euro in the coming days.

Polish bonds stronger at longer-end of the curve ahead of the third quarter debt supply due at around 1300 GMT. Dealers expect supply to be smaller than in previous quarter.

"We are watching bond price growth all the time, mainly due to lower supply. It seems that the demand of foreign investors declined slightly in the last few weeks, but it is still positive." said Arkadiusz Bogusz, fund manager from Credit Suisse Asset Management Polska said.

"Passing reforms in Greece calmed moods on euro-bonds and emerging markets so we have a rise in appetite for risk. This reaction will most likely last a few days and then we have the start of summer holidays so I would not expect significant changes on the market," he added.

Copyright Reuters, 2011