BUDAPEST: Central European currencies weakened on Thursday as the Polish government talked down the zloty and Romania reported a rise in its trade deficit just after it raised public-sector wages.
But auctions of Hungary, Poland and Romania's high-yielding government bonds drew healthy demand as risk appetite fell in global markets, with Japan leading a decline by stocks in Asia and Europe.
Yields dropped and Hungary and Romania sold more bonds than planned .
Hungary's 10-year debt traded at a yield of 3.25 percent, down 11 basis points from Wednesday's fixing.
"Bullish sentiment remains as (US) rate hikes could come later and the ECB has started (corporate) bond buying," one Budapest-based fixed income trader said.
The forint, the zloty and the leu shed 0.1-0.2 percent against the euro by 1112 GMT, in contrast with the dinar, which firmed 0.1 percent after the Serbian central bank kept its benchmark interest rate on hold at 4.25 percent.
Earlier this week the zloty and the forint reached their strongest since mid-April, even though details of a Poland bill on converting foreign-currency mortgages to zlotys left unclear its costs to banks.
Poland's central bank also kept interest rates unchanged on Wednesday, expressing hopes that a booming labour market could lift the economy out of deflation.
Rapid gains for the zloty would be a worry, Polish Deputy Prime Minister Mateusz Morawiecki was quoted as saying on Thursday.
The leu came under pressure as Romania reported a rise in its trade deficit. However, Romania also approved a 3.5 billion lei ($883.55 million) increase in public-sector wages on Wednesday, and unions and politicians may seek more increases before elections this year, ING analysts said in a note.
One reason for Central Europe's economic growth buoys is a surge in retail consumption as wages rise. Governments are under pressure to lift wages to counter migration to the west. Thousands of workers have moved to richer European Union states.
The International Monetary Fund warned Serbia that it had no room in its budget to raise wages and pensions.
Czech bonds firmed slightly. Figures showed that inflation slowed to almost zero in May, but the central bank said it would start to rise late this year .
The kuna eased 0.1 percent even though Croatian Deputy Prime Minister Tomislav Karamarko said he was ready to step down to save the ruling coalition.
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