BUCHAREST/BUDAPEST: Emerging European currencies gave up early gains on Friday as disappointing US payroll data encouraged risk aversion in global markets, while worries about a Czech coalition row and Hungary's international aid talks weighed on sentiment.
Czech and Hungarian industrial output figures beat forecasts and lifted the countries' currencies in early trade, but the gloomy US economic data reversed the rise.
The forint had eased 0.1 percent against the euro by 1359 GMT to 295.95 and the Czech crown shed 0.2 percent to 24.68, while the Polish zloty was flat at 4.157 and the Romanian leu firmed 0.1 percent to 4.368.
Dealers said the currencies' retreat was mainly caused by the US data which raised concern about the outlook for the global economy and cut investors' appetite for riskier assets.
A local report that Hungary is not expected to start credit talks with the International Monetary Fund this month could weigh on the forint when markets reopen on Tuesday after the Easter holiday, dealers said.
"Investors will sooner or later get bored with the delays (in the credit talks)," one Budapest-based currency dealer said. "Patience may still last for now, but with more negative international sentiment the forint will be punished."
Investors remain split on whether Budapest can secure a financial backstop. A dispute with the European Commission over some Hungarian laws has blocked the talks, and Brussels also wants the government to cut the budget deficit.
"Uncertainty is huge... some people buy, others sell on the same news," one fixed income trader said. "It's a question of what we will see in the (government's) convergence programme (to be published next week," the trader added.
The Commission has suspended some funds for Hungary but the country can regain access to them if it works out by June how to bring the budget deficit below the European Union's ceiling of 3 percent of economic output in 2013.
RECESSION FEAR PERSISTS
Hungarian industrial output rose 1.1 percent in annual terms in February, while analysts had projected a one percent fall. However, fiscal cuts have already hurt the economy, which is on the brink of recession.
Output in the Czech Republic, also hit by a slowdown in the region's export markets in the euro zone, also beat forecasts, but analysts said the economy was not yet out of the woods.
"We have to watch figures coming especially from Germany," Patria Finance chief economist David Marek said. "Also PMI figures in western European countries are not as positive as in the Czech Republic or in Hungary. It's an indication that we should be more cautious than current figures indicate."
The region's currencies ended the week mixed, near last week's closing levels. They have changed little in the past few weeks after gains early this year as the European Central Bank pumped liquidity into euro zone markets.
A Reuters poll conducted this week showed that analysts expect the currencies to tread water or weaken slightly in the months ahead as the euro zone struggles to end its debt crisis, but they should post gains again within 6-12 months, led by the volatile forint.
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