CEE MARKETS 3-FX edge up, Romania caps yield again at debt sale

                                
 * FX gain slightly but risk aversion dents appetite
                                
 * Romania sells much less 9-mo paper than planned
                                
 * Polish bonds extend gains, further gains seen limited
                                
 
 (Updates with Romania auction)
                                
 By Marius Zaharia and Jason Hovet
                                
 BUCHAREST/PRAGUE, Aug 16 (Reuters) - Central European
currencies made slight gains on Monday but risk aversion limited
demand, while Romania sold about a third of a planned treasury
bill auction as it again refused to sell at yields above 7
percent.
                                
 Worries about the strength of the recovery of some major
European economies took the edge off forecast-beating,
second-quarter GDP readings for the Czech Republic, Hungary and
Romania late last week, with weaker-than-expected growth in
Japan hitting global appetite for assets in riskier emerging
markets.
                                
 Emerging Europe's recovery may also face headwinds due to
the impact of state spending cuts and frail domestic demand,
especially in Hungary and Romania. [ID:nLDE67C09Y]
                                
 Romania's funding costs have risen since early May as
investors question the government's ability to enforce
International Monetary Fund-mandated fiscal tightening measures
necessary to keep aid payments coming.
                                
 Investors fear a significant VAT hike and a deep cut in
public wages will worsen an expected contraction in Romania's
economy this year and backfire by hitting state revenues.
                                
 The finance ministry sold 284 million lei ($86 million) of a
planned 800 million lei sale of nine-month paper, cutting the
yield off at 7 percent as in previous recent sales.
                                
 "Basically, the six-month paper looks like the only maturity
that the ministry can sell successfully at 7 percent," said one
trader in Bucharest. [ID:nLDE67F14I]
                                
 That happened earlier this month, and analysts have said
buyers would probably wait for a similar tender on August 23.
                                
 
                                
 STOCKS HELP
                                
 Central European stock markets rose on Monday to give some support to currencies.
                                
 The Romanian leu <EURRON=>, the Hungarian forint <EURHUF=>
and the Polish zloty <EURPLN=> rose 0.1-0.3 percent by 1302 GMT,
while the Czech crown <EURCZK=> was flat.
                                
 Bonds gained in safe-haven trading, with Hungarian bond
yields dropping by up to 8 basis points in a shallow market.
                                
 Polish paper was a touch stronger, backed by Friday's
lower-than-expected inflation data. But dealers said there was
limited room for more gains.
                                
 "Investors' portfolios are already full of this paper. The
global mood is still uncertain and there are still concerns over
fiscal policy, so low inflation is the only positive sign (for
Polish debt)," one trader said.
                                
 Czech July producer price data came in slightly below
forecasts, underscoring the case for keeping interest rates at
record lows at least until the middle of next year. Longer-dated
bond yields, most at life-time lows, inched down.
[ID:nLDE67F04A]
                                
 
--------------------------MARKET SNAPSHOT--------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2010 
Czech crown      <EURCZK=>   24.81    24.813  +0.01%   +6.08%
Polish zloty     <EURPLN=>    3.989    4.005  +0.4%    +2.88%
Hungarian forint <EURHUF=>  279.74   280.7    +0.34%   -3.36%
Croatian kuna    <EURHRK=>    7.239    7.232  -0.1%    +0.97%
Romanian leu     <EURRON=>    4.23     4.233  +0.07%   +0.17%
Serbian dinar    <EURRSD=>  104.54   104.85   +0.3%    -8.28%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond   CZ2YT=RR   +7 basis points to  121bps over bmk*
7-yr T-bond   CZ7YT=RR    -6 basis points to  +113bps over bmk*
10-yr T-bond   CZ9YT=RR   +4 basis points to  +119bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond   PL2YT=RR   +2 basis points to  +409bps over bmk*
5-yr T-bond   PL5YT=RR    -2 basis points to  +390bps over bmk*
10-yr T-bond PL10YT=RR    -1 basis points to  +339bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond   HU3YT=RR    -3 basis points to  +598bps over bmk*
5-yr T-bond   HU5YT=RR    -8 basis points to  +542bps over bmk*
10-yr T-bond   HU10YT=RR  -2 basis points to  +475bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1502 CET.
Currency percent change calculated from the daily domestic 
close at 1600 GMT.

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 (Reporting by Reuters bureaus, writing by Marius Zaharia and
Jason Hovet; Editing by Susan Fenton)