×

CEE MARKETS-Currencies, bonds ease on new EU legal action against Poland

* EU to start legal action over Polish reform of judiciary

* Currencies ease moderately, Fed comments will be watched

* Czech rate setter: ECB easing limits room for rate hikes

(Recasts with European Commission legal case against Poland) BUDAPEST, July 26 (Reuters) - Central European currencies eased as the European Commission said it would start legal action against Poland over an overhaul of the judiciary that it says undermines the independence of judges. Commission head Jean-Claude Juncker also threatened Poland with suspending its voting rights in the European Union on Wednesday, a move which Hungary has already said it would veto. Separately, the top European Union court's adviser dismissed a challenge brought by Slovakia and Hungary against the obligatory relocation of refugees across the EU, a plan also fiercely opposed by Poland and the Czech Republic. The Czech crown, the forint and the zloty eased by 0.1 percent against the euro by 1227 GMT, and government bond yields rose by a few basis points. But the moves were modest relative to bigger swings in the zloty over the past week due to worries over the Polish reform bills. These were partly vetoed by Poland's president Andrzej Duda, but the street protests they triggered and the risk of EU sanctions have added to investors' concerns. Investors held their breath ahead of the Federal Reserve's meeting on Wednesday. Any reference to upcoming cuts in the Fed's monetary stimulus could lead to a weakening of currencies and bonds in Central Europe, traders said. The region's healthy economic growth has made its assets relatively resilient to a shift towards a tighter monetary stance by the world's main central banks, even though they have not been immune to a rise in debt yields in the U.S. and Germany. Central banks in the region have not lifted their own interest rates since a hike in Belgrade in early 2013. The closest to rate tightening is the Czech central bank (CNB), which some analysts have said may deliver its first hike as soon as at its next meeting, on Aug 3. But investors are split over the timing, partly because many believe a firming of the crown will do the bank's work even without a hike. The scope for tightening is limited by the European Central Bank's quantitative easing, CNB Vice Governor Vladimir Tomsik said on Wednesday. In Poland, any rise in inflation risks could reignite central bank interest rate hike speculation and, along with healthy economic growth, could help the zloty, analysts said. "While we therefore accordingly forecast a stronger PLN in our base scenario for the coming months, an escalation of the political uncertainties would require a revision of our PLN forecast," Raiffeisen analyst Wolfgang Ernst said in a note.

CEE MARKETS SNAPSH AT 1427 CET

OT CURRENCIES

Latest Previo Daily Change

us

bid close change in

2017

Czech crown 26.040 26.015 -0.09% 3.71% 0 5 Hungary 305.62 305.45 -0.06% 1.05% forint 00 00 Polish zloty 4.2610 4.2578 -0.08% 3.35% Romanian leu 4.5633 4.5651 +0.04 -0.62%

%

Croatian kuna 7.4120 7.4145 +0.03 1.93%

%

Serbian dinar 120.41 120.76 +0.29 2.44% 00 00 % Note: daily calculated previo close 1800 change from us at CET

STOCKS

Latest Previo Daily Change

us

close change in

2017

Prague 1009.0 1015.1 -0.60% +9.48 2 3 % Budapest 35486. 35286. +0.57 +10.8 33 14 % 8% Warsaw 2356.6 2341.3 +0.65 +20.9 5 6 % 8% Bucharest 8337.1 8328.7 +0.10 +17.6 9 3 % 7% Ljubljana 806.48 808.80 -0.29% +12.3

9%

Zagreb 1881.6 1879.3 +0.12 -5.67% 8 9 % Belgrade 716.76 718.50 -0.24% -0.09% Sofia 710.42 711.77 -0.19% +21.1

4% BONDS

Yield Yield Spread Daily (bid) change vs change Bund in Czech spread

Republic

2-year 0 0.025 +067b +2bps

ps

5-year 0.075 0.048 +024b +6bps

ps

10-year 0.976 0.023 +043b +4bps

ps Poland

2-year 1.861 0.003 +253b +0bps

ps

5-year 2.668 0 +283b +2bps

ps

10-year 3.322 0.015 +277b +3bps

ps

FORWARD RATE AGREEMENT 3x6 6x9 9x12 3M

interb ank

Czech Rep <PR 0.5 0.66 0.74 0

IBOR=>

Hungary <BU 0.21 0.23 0.317 0.15

BOR=>

Poland <WI 1.78 1.785 1.832 1.73

BOR=

Note: FRA are for ask quotes prices ********************************************************* ****

(Reporting by Sandor Peto; editing by Alexander Smith)