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BUX further up on Erste deal

Telco

The Budapest Stock Exchange's main BUX index finished up 1.56% at 17,942.13 Tuesday, a four-month high, after rising 1.88% Monday to a two-month high. It is up 7.86% from year-end, after losing 10.40% last year.

Flooding the marketplace with record amounts of new money, investors continued to welcome the agreement of Hungary' government with Erste Bank and the EBRD on Monday which involves a gradual reduction of the hefty bank levy during four years from next year. Analysts interpret the agreement as showing that the government, under pressure, is resilient enough to sign a partial truce on one front while it continues to tout special sectoral taxes as the backbone of its economic policies. Any caution vindicated by memories of earlier, not observed, pledges of the government to reduce the banking tax on certain conditions seemed to be was swept away, with OTP soaring again about as much as on Monday.

Now the government can focus on another front, the advertisement tax. It is in talks on how the reduce a 50% tax rate burdening Bertelsmann's Hungarian venture, television broadcaster RTL Klub, in order to avoid an infringement procedure by the European Commission. To make up for the loss, it wants to broaden the scope of activities and companies that pay ad tax. It could place a bigger burden on business interests of a former ally-turned-foe of the prime minister who has declared a "media war" against him last week, with the risk of fomenting a palace revolution in the governing Fidesz party also involved, political analysts add.

As part of a broader deal with the EBRD the government will sell its stakes in local lenders MKB Bank and Budapest Bank within three years, and Erste said it would launch a three-year, EUR 550 mln lending programme in Hungary.

It was not immediately clear whether the government had discussed similar deals with other foreign banks operating in Hungary. However, announcing a plan to streamline operations in Hungary, Raiffeisen said on Tuesday it was in talks with the government.

Hungarian officials said they were hopeful the main credit agencies, which rate the country's bonds below investment grade, will change their assessment in light of the agreement.

The government is betting on investments and higher economic growth to make up for the tax shortfall.

Hungary's plan to cut its banking-sector tax next year is positive for the sector as well as for the GDP outlook, Bank of America Merrill Lynch said in a note on Tuesday. The government's improved relationship with banks is one if the factors supporting BofAML's 3.9% GDP growth forecast for Hungary this year, it said. The forecast is way above consensus. The European Commission penciled in 2.4% last week, after expecting 2.5% as lately as last autumn.

Asset managers Concorde upgraded OTP's rating to overweight from equal weight and upped its target price to HUF 4,667 from HUF4,100 in the wake of the Hungarian government's agreement with Erste and EBRD.

MOL rose on the third fuel price rise in Hungary within a week, while it opened an oil pipeline to Slovakia which, connected to the Adria pipeline, should secure oil to its refineries in Hungary and Slovakia even if Russian supplies fall out.

After rising in the initial euphoria on Monday, only Richter fell back on Tuesday as its Q4 losses beyond the worst of market forecasts due to the Russian market, published early Monday together with a guidance for a 7-8% sales drop in euro terms this year, finally sank in.

OTP shot up 4.40% to HUF 4,291, a near six-month high after an almost three-month high on Monday, on turnover of HUF 24.10 bln from a HUF 28.12 bln session total, more than three-and-a-half times the daily average this year.

MOL won 1.41% to 11,895 on turnover of HUF 1.73 bln.

Magyar Telekom gained 1.63% to HUF 375 on turnover of HUF 664 mln.

Richter retreated 1.94% to HUF 3,785 on turnover of HUF 1.29 bln.

The bourse's mid-cap BUMIX went out 0.89% higher at 1,491.15.

Elsewhere in the region, the WIG 20 in Warsaw was up 0.01%, while Prague's PX rose 0.99%. Western Europe's major indices were mixed ahead of their close Tuesday, FTSE-100 in London down 0.39%, DAX30 in Frankfurt up 0.45%, and CAC40 in Paris up 0.65%.

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