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Koruna gains to record as investors return to emerging markets - extended

The Slovak koruna rose to a record against the euro as the rally in global equity markets led investors to return to riskier emerging market assets.

European stocks gained for a third day and Asian equities also rose. The koruna also outperformed other currencies in the region after a report two days ago showed the economy expanded an annual 9.6% in the Q4, the third-fastest pace in the European Union. „The koruna is at a record high, benefiting from strong growth and global stabilization,” said Elisabeth Gruie, an emerging market currency strategist at BNP Paribas SA in London. „The central bank has been mute over the past week and the market is testing new levels. But I think we may see the central bank stepping in at levels just below 34 against the euro.” Against the euro, the koruna advanced to 33.96 by 1 p.m. in Bratislava from 34.15 late yesterday, gaining for a third consecutive day. The Slovak central bank declined comments about the currency and potential intervention. In other trading, the Hungarian forint gained to 251.46 against the euro from 252.55 late yesterday, hitting a two-week high. The yield on the country's 6% bond due October 2011 fell to 7.4% in Budapest. The spread over the equivalent maturity German bund fell today to 353 basis points.

Hungary's benchmark interest rate, the European Union's highest, may drop by July for the first time in nine months, according to a report today from Ecostat, the government's economic research institute. The rate has been held unchanged at 8% since November. The Czech koruna gained to 28.14 per euro from 28.15 yesterday and the Polish zloty rose to 3.88 per euro from 3.89. The yield on the Polish 5.25% benchmark bond due October 2017 fell to 5.19% in Warsaw, with the spread over the similar maturity German bund narrowing to 127 basis points. Investors are also waiting for the European Central Bank's rate decision and press conference later in the day, with all 38 economists surveyed by Bloomberg News expecting the main rate to rise by a quarter point to 3.75%. „As usual, any sign of increased hawkishness could be detrimental for Polish assets,” ING Bank Slaski analyst Bartosz Pawlowski said in an e-mailed note. The main rate of the Polish central bank is at a record low of 4%, unchanged from March 2006. The Czech benchmark is at 2.5%.

The central bank began selling the koruna at 33.85 per euro, said Juraj Zabadal, a trader at Slovenska Sporitelna AS in Bratislava, in a phone interview. Against the euro, the koruna fell to 34.02 per euro. It reached a record earlier of 33.8. Slovakia aims to switch to the euro in 2009 and has pegged the value of the koruna at 38.455 per euro in the Exchange Rate Mechanism, which stabilizes currencies before joining the euro-region. According to the mechanism, the koruna can move 15% in either direction. (Bloomberg)