CEE MARKETS 2-FX regain ground as crown shrugs off politics

                                
 * FX, stocks recover on market calming, euro
                                
 * Czech politicians look for solution, assures markets
                                
 
  (Adds details, bonds)
                                
 By Jason Hovet
                                
 PRAGUE, Sept 3 (Reuters) - The Polish zloty led gains in
central Europe as markets got back to firmer ground on Thursday
on the back of stronger emerging equity markets, and the Czech
crown shook off political worries.
                                
 Central European bourses opened up, following Asian gains,
but pulled back from early highs and traded around 1-1.5 percent
up after losses of more than 3 percent in the previous session.
                                
 The crown <EURCZK=> edged up 0.2 percent to 25.66 to the
euro, while the Polish zloty <EURPLN=> led gains with a 0.5
percent rise to bid at 4.139 to the euro by 0908 GMT.
                                
 Dealers said a stronger euro/dollar, a reference rate for
the region, ahead of a European Central Bank meeting seen
holding interest rates unchanged added to central Europe's
rally.
In the Czech Republic, markets got some assurance after
leaders agreed on Wednesday to push for an early election by
preparing constitutional changes.
                                
 The move hinges on a court injunction this week that will
likely postpone early polls set for Oct. 9-10 as judges debate
the legality of them. [ID:nL257978]
                                
 "All a bit of a mess but we do see an agreement being
reached...," Cheuvreux economist Simon Quijano-Evans said in a
Thursday note.
                                
 "...It boils down to the fact that the Constitution doesn't
allow for parliament to dissolve itself, something that all
parties appear to be agreeing to change very soon, enabling an
election this year."
                                
 Czech bonds were mostly weaker in the middle of the curve,
while money market rates eased slightly.
                                
 Komercni Banka recommended selling the Czech 3x6 forward
rate agreements with a target of 1.75 percent after rates jumped
around 20 basis points in the past two weeks to 2 percent as
markets started pricing in rate hikes.
                                
 
                                
 SLOW PATH
                                
 Polish and Hungarian bonds were also quiet on Thursday, with
yields steady along the curve.
                                
 An improving economic outlook in the euro zone has lifted
central Europe's recovery prospects and built expectations that
Poland and the Czech Republic, where rates are at record lows,
have ended monetary easing.
                                
 By contrast, Romania and Hungary, with the highest rates in
the European Union, are expected to cut them further as analysts
warn the return to economic growth will be slow.
                                
 Hungary's economy may shrink less than an official
government projection for 6.7 percent this year, Prime Minister
Gordon Bajnai said on Thursday.
                                
 The forint <EURRON=> was up 0.2 percent on the day.
Romania's leu <EURRON=> was steady at 4.24 to the euro.
                                
 "The Dow did not fall too heavily, Asia is performing quite
well so sentiment is not as gloomy as yesterday," a
Budapest-based currency dealer said.
                                
 Markets have begun questioning a summer rally that pushed
regional bourses to double-digit gains and the zloty up 7
percent, although lower liquidity has exaggerated price moves.
                                
 A Reuters poll on Wednesday showed currencies steady over
the next three months, with only the zloty -- and its stronger
economy -- the outperformer. <CEEFXPOLL02> [ID:nL2538084]
                                
 
--------------------------MARKET SNAPSHOT--------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2009 
Czech crown      <EURCZK=>   25.665   25.707  +0.16%    +4.24%
Polish zloty     <EURPLN=>    4.139    4.16   +0.51%    -0.58%
Hungarian forint <EURHUF=>  274.81   275.35   +0.2%     -4.1%
Croatian kuna    <EURHRK=>    7.342    7.341  -0.01%    +0.31%
Romanian leu     <EURRON=>    4.24     4.239  -0.02%    -5.32%
Serbian dinar    <EURRSD=>   93.267   92.98   -0.31%    -4.06%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond   CZ2YT=RR    -22 basis points to  124bps over bmk*
4-yr T-bond   CZ4YT=RR   +12 basis points to  +165bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond   PL2YT=RR    -5 basis points to  +389bps over bmk*
5-yr T-bond   PL5YT=RR    -3 basis points to  +324bps over bmk*
10-yr T-bond PL10YT=RR    -5 basis points to  +284bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond   HU3YT=RR    -3 basis points to  +651bps over bmk*
5-yr T-bond   HU5YT=RR    -5 basis points to  +594bps over bmk*
10-yr T-bond   HU10YT=RR  -13 basis points to  +507bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1106 CET.
Currency percent change calculated from the daily domestic 
close at 1600 GMT.

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 (Reporting by Reuters bureaus, writing by Jason Hovet, editing
by Victoria Main)