Friday, November 6, 2009

EMERGING MARKETS-Assets dip, Romania CDS rise

By Carolyn Cohn

LONDON, Nov 5 (Reuters) - Emerging assets weakened slightly on Thursday but markets remained muted ahead of U.S. data and a G20 finance ministers' meeting later this week, while the cost of insuring Romanian debt rose on political woes.
The Federal Reserve left interest rates unchanged at 0.0-0.25 percent on Wednesday and the European Central Bank left rates unchanged at 1 percent on Thursday, as expected.

U.S. employment data is due on Friday and G20 policymakers meeting in Scotland at the weekend are expected to keep stimulus in place and try to establish a new framework to keep an eye on each others' economies and prevent future crises.

'The market is still undecided. That's why we are in range trading and sometimes large swings,' said Zsolt Papp, chief economist, emerging Europe, at KBC.

'For fund managers who have done very well in this rally since February/March, they are considering to lock in some profits. They are not going to be very active for the rest of the year. It's leading to uneven trading patterns.'

Benchmark emerging equities dipped 0.29 percent, but have gained 1 percent this week after losing 5.5 percent last week.

Emerging stocks more than doubled between March and late October in growing optimism over the world economy but have lost ground on worries global stimulus measures may be taken off too soon.

Romania's opposition rejected prime minister-designate Lucian Croituru on Wednesday, feeding scepticism that the government will be able to approve a tough 2010 budget by an IMF deadline to release vital aid.

Romanian five-year credit default swaps rose 10 basis points from the U.S. close, to 285.2 bps, according to CDS monitor CMA DataVision.

Romania's CDS prices have risen 85 bps in the last six weeks on concern about a government crisis which may hinder further disbursement of the country's 20 billion euro international aid package.

'We remain short euro/Romania... and see limited risk for upside but we continue to dislike CDS,' said analysts at BNP Paribas ( BNPQY.PK - news - people ) in a client note.

The Serbian dinar was slightly weaker on the day after Serbia's central bank cut its main interest rate by 100 basis points to 10 percent on an improved outlook for inflation.

However, the Czech crown strengthened to 2-1/2 week highs against the euro after the central bank kept interest rates unchanged, in line with a Reuters poll of analysts but against the interest rate market which had priced in a greater chance of a cut.

Emerging sovereign debt spreads widened by 5 basis points to 320 bps over U.S. Treasuries, continuing recent losses after strengthening beneath 300 bps last month.

Frontier sovereigns continue to consider tapping the international bond market, however.

Angola said on Wednesday it will issue $4 billion in medium-term bonds in the international market in the first half of 2010.

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