(The final London emerging report for 2011 will be on Friday,
Dec 23. The report will resume on Tuesday, Jan 3.)
* Emerging market gains from ECB auction peter out
* Hungarian forint steady after earlier falls from SP cut
* Kazakh BTA bonds rally, Czech crown retreat halted
By Sebastian Tong
LONDON, Dec 22 (Reuters) - Emerging market gains
petered out on Thursday after two sessions while Hungary's
forint steadied from the previous day's near two percent fall
after the country suffered its second ratings cut to 'junk' in
under a month.
Bonds issued by Kazakh state bank BTA rallied after it said
it would propose further debt restructuring in January while the
a three-session retreat in the Czech crown was halted after the
central bank signalled the likelihood of a rate hike.
The European Central Bank's first-ever three-year liquidity
operation had eased funding pressures faced by the continent's
lenders, but the ensuing sentiment boost fizzled out as
attention returned to the long-term intractability of debt
problems faced by euro zone governments.
After rising for the past two sessions, the key emerging
equity benchmark was flat on the day with emerging
sovereign debt unchanged over U.S. Treasuries to trade
at 371 bps.
"We're seeing a lack of momentum and liquidity is obviously
poor. Market reaction to the ECB (auction) has been
disappointing. It was a confidence booster but the ECB move was
not enough to provide flow to risky assets." said Benoit Anne,
head of emerging markets strategy at Societe Generale.
"Investors used the rally to take profits and the market
sold off by yesterday afternoon. Banks will use the ECB money to
meet their financing needs for the first quarter and won't go
into riskier assets yet."
Having lost nearly a quarter of their value this year,
Indian shares rose for their second straight day to
their highest in nearly a week while Chinese shares
ended down for the fourth consecutive session to languish at
their weakest in over 2-1/2 years.
The Thomson Reuters emerging European share index
eked out a 0.2 percent gain though Hungarian
shares were down 1.6 percent to stay near their weakest
levels in a week.
HUNGARY AT 'JUNK'
Hungary saw its credit rating cut to 'junk' late Wednesday
by Standard Poor's (SP) with the rating agency warning that
government policy had become unpredictable and less credible.
The move, coming after a Nov. 24 downgrade by Moody's, sent
Hungarian five-year credit default swaps sharply higher to a
three-week high. There were some signs of a selloff in its bonds
and the country had to pay more for a treasury bill auction on
Thursday.
"The move is slightly surprising given that SP previously
indicated that it wants to wait till the conclusion of the
(EU/IMF) talks. But following the break-up of the informal talks
last week and increasing pressure from the EU, it is
understandable," UniCredit said in a note.
"After this, we think it is highly likely that the Fitch
will follow very soon. As most of the Hungarian external debt is
held by dedicated emerging market bond funds, which do not have
strict rating limit around the investment grade, we do not
expect significant forced selling."
The forint rose 0.4 percent against the euro after
falling nearly 2 percent fall on Thursday. Versus the Swiss
franc, the Hungarian unit stayed close to three-week low.
The forint's regional peers also stayed firm with the Polish
zloty at near one-month highs and the Czech crown
a touch firmer.
The Czech central bank held interest rates on Wednesday but
said crown weakness and other inflation pressures meant its next
move was likely to be a hike.
Romania's leu edged higher for the second successive day to
a three-month high.
Ahead of a Friday central bank meeting in Russia, the rouble
firmed to a two-week high against its euro-dollar
basket. Analysts expect rates to be left unchanged.
Meanwhile, BTA bonds rose after the majority state-owned
bank, the largest of Kazakhstan's banks to default in 2009, said
it would propose a second debt restructuring at a shareholder
meeting on Jan 26.
BTA bonds maturing July 2018 were up 0.88 to
29.88.
International investors in the debt included Ashmore,
Aberdeen Asset Management and BNP Paribas Investment Partners at
end-Sept 2011, according to Emaxx data.
The cost of insuring Kazakh sovereign risk was quoted lower
from recent escalated levels after deadly weekend riots in the
country's western oil-producing region.
(Additional reporting by Carolyn Cohn; Editing by John
Stonestreet)
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