CEE MARKETS 2-FX give up gains, bonds stronger after auctions

                                
 * FX give up early gains as Baltic, local worries cast pall
                                
 * Polish, Czech bonds gain after strong auctions
                                
 
  (Adds details, fixed income)
                                
 PRAGUE, Oct 8 (Reuters) - Central European currencies
reversed early gains on Thursday after investors pulled back on
lingering Baltic contagion concerns, with rate cut expectations
and politics hampering the Czech crown and Romania leu.
                                
 Renewed worries that the financial problems of Latvia could
impact the markets of bigger states in Central Europe have grown
after a Latvia bond auction failed on Wednesday. [ID:nL7616321]
                                
 The Baltic country's finance ministry said on Thursday it
was also working on more budget reduction measures, under
pressure from lenders like Sweden and the European Union, a
dispute that has also raised currency devaluation fears.
                                
 "We see some better risk appetite, and everyone was jumping
long on the crosses early, but we still have some Baltic mess
that everyone is focusing on," said a Stockholm-based central
European dealer.
 Adding pressure in Romania is a no-confidence vote in Prime
Minister Emil Boc's minority government on Oct. 13 after his
coalition with the Social Democrats fell apart. [ID:nL7608185]
                                
 Political deadlock there, which could last for months,
raises concern over the future of Romania's 20 billion-euro
($29.4 billion) aid package from the International Monetary Fund
and the government's budget plans for 2010.
                                
 The leu <EURRON=> slipped 0.2 percent to around 4.269 to the
euro by 0951 GMT, underperforming a 0.2 percent rise for the
Polish zloty <EURPLN=>, while Hungary's forint <EURHUF=> lost
0.3 percent.
                                
 "Politics is keeping the leu weak, but I don't think a fall
of the government is fully priced in so if that happens it will
weaken further," said a local currency dealer.
                                
 The Bucharest stock exchange <.BETI> dipped as well, while
other central European bourses were all up around half a percent
to track European peers after a surprise quarterly profit for
global aluminium company Alcoa <AA.N>. [ID:nL895582]
                                
 
                                
 BONDS GAIN
                                
 In Hungary, bonds were steady after a strong bond auction
that sold 60 billion forints worth of government bond auctions,
more than the 50 billion on offer. [ID:nBUD005155]
                                
 The Czech crown extended this week's losses to touch a
7-week low <EURCZK=> as expectations of more monetary easing
weighed.
                                
 Central bank chief Zdenek Tuma and Vice-Governor Miroslav
Singer voted in the minority at the last meeting for a rate cut,
which markets have taken as a signal that rates could go lower
at November's meeting. [ID:nL6352407]
                                
 Tuma also told Reuters on Monday the bank's board discussed
market intervention against the crown's firming as a possible
way to ease policy. [ID:nL58899]
                                
 Czech bond yields dropped across the curve, aided also by a
strong auction on Wednesday. [ID:nL7618856] Polish 2-year bonds
also gained more after a Wednesday tender that saw demand at
almost three times the offer.
                                
 With only a handful of debt sales expected for the rest of
the year, investors have scrambled for Czech and Polish debt
even as expectations build that these governments will flood
their markets with more supply next year to cover ballooning
fiscal gaps.
                                
 
--------------------------MARKET SNAPSHOT--------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2009 
Czech crown      <EURCZK=>   25.73    25.703  -0.1%    +3.98%
Polish zloty     <EURPLN=>    4.231    4.24   +0.21%    -2.74%
Hungarian forint <EURHUF=>  270.19   269.4    -0.29%    -2.46%
Croatian kuna    <EURHRK=>    7.252    7.248  -0.06%    +1.56%
Romanian leu     <EURRON=>    4.276    4.267  -0.21%    -6.12%
Serbian dinar    <EURRSD=>   93.00    92.89   -0.12%    -3.78%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond   CZ3YT=RR    -1 basis points to  156bps over bmk*
7-yr T-bond   CZ7YT=RR    -18 basis points to  +172bps over bmk*
10-yr T-bond  CZ10YT=RR    -13 basis points to  +154bps over
bmk*

Polish treasury bonds <0#PLBMK=>
2-yr T-bond   PL2YT=RR    -4 basis points to  +381bps over bmk*
5-yr T-bond   PL5YT=RR    -10 basis points to  +337bps over bmk*
10-yr T-bond PL10YT=RR    -8 basis points to  +307bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1153 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 Mike Peacock)