CEE MARKETS 3-Crown at 23-month high, forint up before poll

                                
 * Crown at highest since Nov 2008 on rate hike expectations
                                
 * Hungary's forint firms on hopes of fiscal cuts
                                
 * Strong PMI reading supports Polish zloty, bonds
                                
(Adds quotes, further details)
                                
 By Jason Hovet and Marcin Goettig
                                
 PRAGUE/WARSAW, Oct 1 (Reuters) - The Czech crown hit a
23-month high on Friday amid expectations of monetary tightening
and the forint gained 1 percent on hopes that Hungary will
shortly publish details of planned budget deficit reductions.
                                
 Data pointing to improved economic prospects in Poland and
the Czech Republic lent support to the zloty and the crown, the
two best performing emerging European currencies this year.
                                
 Poland's purchasing managers' index rose to its highest
level in nearly four years, pushing the zloty up around 0.7
percent against the euro. The Czech PMI rose to its highest
point since August 2007. [ID:nLDE68T0X7] [ID:nLDE6900CL]
                                
 The two economies are poised to grow faster this year and in
2011 than emerging European peers Hungary and Romania as well as
many euro zone states, supporting currency appreciation. But the
zloty and crown became stuck in tight ranges around multi-month
highs during September.
                                
 On Friday the crown <EURCZK=> broke through the key level of
24.5 per euro in early trade, pushing it to its highest point
since November 2008 at 24.365. It was up 0.5 percent on the day
at 24.453 by 1309 GMT.
                                
 "It was a reaction to the (Czech central bank) minutes...
showing there might be interest in raising rates in the next six
months," a Prague dealer said, adding that buying interest from
London started the move.
                                
 The Czech central bank left rates unchanged at a record low
0.75 percent last week but one member on the seven-seat board
voted for a rate hike, the first such vote in more than two
years. The minutes showed a split on the board. [ID:nPRG004399]
                                
 
                                
 BUDGET HOPES LIFT FORINT
                                
 The forint <EURHUF=> gained 1 percent, hitting a 4-month
high and bidding at 273.86.
                                
 It was lifted by hopes that the government will have the
political heft after Sunday's local elections to publish details
of plans to cut the budget deficit to below 3 percent of GDP
next year.
                                
 Hungarian government bonds also rose, with yields dropping
by about 10 basis points on the stronger forint, shrugging off
news of upward revisions in the country's budget deficit and
economic contraction in 2009.[ID:nLDE69005Y] [ID:nLDE6900YC]
                                
 The Romanian leu <EURRON=> was flat as investors waited for
the country's top court to rule next week on challenges filed by
opposition parties against a key IMF-backed pension reform bill.
                                
 Analysts said Friday's PMI data underscored a growing
divergence between the region's stronger economies, Poland and
the Czech Republic, and Hungary, whose PMI -- calculated under
different methodology -- dropped to 50.2.
                                
 Hungary is suffering from weak domestic demand following a
6.3 percent economic contraction in 2009.
                                
 "(The PMI readings are) especially encouraging for Poland
and the Czech Republic ... indicating that second-half growth
should remain solid," said Goldman Sachs in a note.
                                
 In Poland, bond yields fell 1-2 basis points thanks to a
limited supply schedule for the fourth quarter and lower
household inflation expectations. [ID:nWSF009537]
                                
 Poland kept rates unchanged this week, and dovish comments
by the central bank's governor have contributed to an easing of
rate hike expectations.
                                
 Currently, Polish forward rates (FRA 3x6) price in 32 basis
points of rate hikes by year-end versus 40 last week.
 --------------------------MARKET SNAPSHOT--------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2010 
Czech crown      <EURCZK=>   24.453   24.569  +0.47%   +7.63%
Polish zloty     <EURPLN=>    3.946    3.972  +0.66%   +4%
Hungarian forint <EURHUF=>  273.86   276.52   +0.97%   -1.28%
Croatian kuna    <EURHRK=>    7.3      7.305  +0.07%   +0.13%
Romanian leu     <EURRON=>    4.267    4.268  +0.02%   -0.69%
Serbian dinar    <EURRSD=>  106.22   106.47   +0.24%   -9.73%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond   CZ2YT=RR    -3 basis points to  86bps over bmk*
7-yr T-bond   CZ7YT=RR    -7 basis points to  +88bps over bmk*
10-yr T-bond   CZ9YT=RR    -7 basis points to  +102bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1518 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 and
Marcin Goettig, editing by Tim Pearce, John Stonestreet)