East European Currencies: Hungarian Forint Rises on Stock Gains

By Emma O'Brien and Ewa Krukowska

Aug. 20 (Bloomberg) -- Hungary's forint advanced as rising stocks in Europe and Asia gave investors confidence to buy higher-yielding emerging-market assets. The Polish zloty rose.

The NTX Index of the 30 largest publicly traded companies in central and Eastern Europe rose 0.5 percent today, the biggest gain in three weeks. An interest rate of 8.5 percent in Hungary and 6 percent in Poland make the currencies a target for the carry trade, where investors borrow funds in countries with lower rates of interest and invest them where returns are higher.

``Equities are seen as a bellwether for risk appetite and when they are up riskier assets in emerging markets do better,'' said Lucy Bethell, an emerging-markets currency strategist in London at Royal Bank of Scotland Group Plc, the world's fourth- largest currency trader. ``The whole region is doing better today and that fits with the bounce in global sentiment.''

The forint rose as much as 0.9 percent to a two-week high of 233.35 against the euro and traded at 233.5 by 5:12 p.m. in Budapest.

Hungary and Poland have been raising interest rates to more than three-year highs to curb inflation. Hungarian rates have increased one percentage point this year. Poland's benchmark has been lifted eight times since April 2007.

Zloty Gains

The zloty advanced to 3.3135 per euro, from 3.3197. It is the best-performing European emerging-market currency against the euro over the past year, gaining 15.7 percent.

Poland's industrial output increased an annual 5.6 percent, compared with 7.3 percent in June and 7.5 percent expected by analysts, a report by the statistical office showed today. Producer prices gained an annual 2.3 percent in July.

Slower output growth might have been caused by the strength of the zloty, which harmed exports, and an economic slowdown in the European Union, Deputy Finance Minister Katarzyna Zajdel- Kurowska said in an e-mailed statement.

``The slowdown in industrial production and in producer prices are further arguments for keeping interest rates on hold at next week's Monetary Policy Council meeting,'' Lars Christensen, chief analyst at Danske Bank in Copenhagen, wrote in a client note today. ``The monetary tightening cycle in Poland has come to an end.''

Elsewhere, the Czech koruna declined 0.1 percent to 24.405 per euro, while Slovakia's koruna held steady at 30.316. The Romanian leu slipped 0.1 percent to 3.5245 per euro.

Turkey's lira dropped 0.2 percent to 1.1932 against the dollar, its fourth straight decline. A decision by the country's top administrative court yesterday to halt government plans to sell the rights to operate highways and bridges is potentially negative for the currency, RBS's Bethell said.

``The roads decision is a bit disappointing,'' she said. ``The lira is struggling more than it has done. Turkey's currency has lost almost 2 percent to the dollar so far this year.

To contact the reporter on this story: Emma O'Brien in Moscow at eobrien6@bloomberg.netEwa Krukowska in Warsaw at ekrukowska@bloomberg.net;