CEE MARKETS 3-Zloty leads FX higher on rate rise expectations

                                
 * Polish rate rise chance grows, but auctions support bonds
                                
 * Currencies also buoyed by euro, return of risk appetite
                                
 * Stock markets mixed
                                
 
 (Adds bonds, updates currencies and stocks)
                                
 By Sam Cage and Jason Hovet
                                
 BUCHAREST/PRAGUE, Feb 16 (Reuters) - Poland's zloty led
emerging European currencies higher on Wednesday, buoyed by
expectations of swifter monetary policy tightening, while the
Romanian leu pierced a key resistance level.
                                
 The zloty has won back recent losses this week, gaining
nearly 1 percent since inflation data on Tuesday showed the rate
of consumer price growth hit a 21-month high.
                                
 Employment data on Wednesday, hinting at inflationary
pressures ahead, supported the view that the Monetary Policy
Council may lean towards a rate hike at a March meeting after a
quarter-point increase last month. [ID:nLDE71E1H2]
The zloty <EURPLN=> gained 0.5 percent and was bid at 3.91
to the euro by 1514 GMT.
                                
 Other central European currencies rose -- the Czech crown
<EURCZK=> and Hungary's forint <EURHUF=> by as much as 0.2
percent -- also benefiting from a firming of the euro, the
region's main reference currency.
                                
 Romania's leu <EURRON=> pierced resistance at 4.25 per euro
and dealers said it could push through to as high as 4.22,
benefiting from better than expected economic growth reported on
Tuesday. [ID:nLDE71E0FY]
                                
 "Higher than expected Poland CPI was the main driver and now
we see stronger EUR vs USD, which pushed equities higher, and
apparently risk is back on," said one dealer in Bucharest.
                                
 Stocks were mixed across the region, with Budapest <.BUX>
and Bucharest <.BETI> nudging higher and Warsaw <.WIG> and
Prague <.PX> falling slightly.
                                
 
                                
 POLISH BONDS STRENGTHEN
                                
 Polish bonds found support in well-bid auctions on
Wednesday, halting its fall after Tuesday's inflation data.
                                
 But dealers said the market would still be driven by the
monetary policy outlook and investors were eyeing comments from
more dovish central bankers for hints. [ID:nLDE71F1L2]
                                
 Hungary's central bank, which has carried out three
quarter-point rises since November to bring its base rate to 6
percent, meets next week at the last policy meeting before the
majority of rate setters will be replaced.
                                
 Traders said the bank could stop its monetary tightening
cycle at the next meeting even though forward rate agreements
are pricing in one more 25 basis point rate increase during the
next few months.
                                
 But the market's real focus remains the government's
expected reform package due next month, said one trader.
                                
 "If all goes well, the rate hike will be priced out and
replaced by expectations for flat interest rates for the rest of
the year," the trader said.
                                
 Credit agency Moody's Investors Service said changes to
Hungary's pension system were "unambiguously credit-negative"
while similar but milder reforms in Poland are unlikely to
trigger a downgrade. [ID:nLDE71F0XQ]
                                
It warned in a statement that Prime Minister Viktor Orban's
government has effectively dismantled private social security
and increased "existing uncertainties regarding the long-term
strength of Hungary's public finances".
                                
 The moves have raised concern among investors towards both
countries, which have largely avoided the austerity programmes
embraced by other neighbours in favour of one-off measures aimed
at boosting revenue.
                                
 
--------------------------MARKET SNAPSHOT--------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2011 
Czech crown      <EURCZK=>   24.342   24.347  +0.02%   +2.7%
Polish zloty     <EURPLN=>    3.91     3.928  +0.46%   +1.23%
Hungarian forint <EURHUF=>  270.75   271.17   +0.16%   +2.67%
Croatian kuna    <EURHRK=>    7.405    7.405   0%      -0.34%
Romanian leu     <EURRON=>    4.247    4.254  +0.16%   -0.33%
Serbian dinar    <EURRSD=>  103.73   103.31   -0.4%    +2.12%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond   CZ2YT=RR   +11 basis points to  50bps over bmk*
7-yr T-bond   CZ7YT=RR   +5 basis points to  +88bps over bmk*
10-yr T-bond   CZ9YT=RR   +7 basis points to  +92bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond   HU3YT=RR    0 basis points to  +521bps over bmk*
5-yr T-bond   HU5YT=RR   +10 basis points to  +484bps over bmk*
10-yr T-bond   HU10YT=RR +8 basis points to  +425bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1616 CET.
Currency percent change calculated from the daily domestic 
close at 1700 GMT.

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 (Additional reporting by Reuters bureaus; Editing by Catherine
Evans)