CEE MARKETS 2-FX weaker as markets fragile, eyes Polish rates

                                
 * Zloty trades weaker, Polish rate decision eyed
                                
 * Lithuania GDP figures still weighing on FX -analysts
                                
 * Hungarian bonds retreat at long end of curve
                                
 
                                
 (Adds more comments, fresh prices.)
                                
 BUDAPEST, July 29 (Reuters) - Central Europe's currencies
retreated on Wednesday, signalling that investors' sentiment
towards the region remained fragile as markets eyed a Polish
interest rate decision later in the day.
                                
 Polish government bonds were flat ahead of the decision,
while Hungarian bond yields retreated at the long end of the
curve following a recent rally fuelled by interest rate cut
expectations.
                                
 Lithuanian GDP numbers released on Tuesday, which showed a
22.4 percent plunge in economic output, continued to weigh on
central European markets, analysts said.
                                
 The key event in the region on Wednesday will be the Polish
central bank's rate decision. All 33 analysts in a Reuters poll
expected Poland's 10-strong Monetary Policy Council to keep the
main rate at a record low of 3.5 percent. [ID:nLR207737]
                                
 The losses of the currencies were mild as stock markets
which provide clues about appetite for risk were mixed, with
Budapest's BUX index <.BUX> shedding almost one percent, while 
Czech and Polish equities posted mild gains.
                                
 The zloty <EURPLN=> traded 0.2 percent weaker as investors
were taking profits after a recent rally and the forint
<EURHUF=> was 0.1 percent weaker as Asian stocks dropped and
risk aversion increased in the world, dealers said.
                                
 "The EMEA markets seem to be in somewhat of a wait-and-see
stance with the global stock market rally pausing," Danske Bank
said in a comment.
                                
 "Despite prospects for an IMF deal for Latvia, the markets
remain worried. The weak Lithuanian GDP numbers for Q2 calls
into question whether the worst is really over for the Baltics,
and the risk of spill over to the rest of CEE remains high."
                                
 
                                
 RATE OUTLOOK KEY
                                
 Investors will be eyeing the Polish central bank's comments
for clues concerning the outlook for interest rates for the
remainder of the year.
                                
 "If the council notes that economic situation improved from
earlier expectations it could support the zloty against the
euro," BPH analysts wrote in a morning note.
                                
 "However, the global sentiment may prove to be the most
important factor for the zloty, which we expect to stabilise
between 4.15 and 4.2 today."
                                
 The Czech crown also pulled back from highs hit in the past
two weeks on profit taking, taking a cue from stock markets,
dealers said.
                                
 "The Polish zloty is higher (weaker) so we can go up, too.
It's some profit-taking from recent highs... We are mainly
watching equity markets," a Prague dealer said.
                                
 "Asian stock markets tumbled, and there is a rise in risk
aversion," a Budapest-based dealer said, adding that domestic
data and factors had no impact on local markets.
                                
 Hungary's central bank cut rates by a bigger than expected
100 basis points on Monday [ID:nLR137823] and traders said
expectations for more cuts to come buoyed the short end of the
government debt yield curve, while long-end yields retreated.
                                
 Hungary's unemployment rate dipped to 9.6 percent in
April-June but stayed near 13-year highs as the economy
continued to suffer from a deep economic crisis, the Central
Statistics Office (KSH) said earlier on Wednesday.[ID:BUD005073]
------------------------MARKET SNAPSHOT-------------------------
 Currency                    Latest   Previous Local    Local
                                
                                   close    currency currency
                                
                                            change   change
                                
                                            today    in 2009 
 Czech crown      <EURCZK=>  25.498   25.525   +0.11%   +4.92%
 Polish zloty     <EURPLN=>   4.193    4.184   -0.21%   -1.86%
 Hungarian forint <EURHUF=> 269.65   269.35    -0.11%   -2.26%
 Croatian kuna    <EURHRK=>   7.332    7.333   +0.01%   +0.45%
 Romanian leu     <EURRON=>   4.214    4.209   -0.12%   -4.74%
 Serbian dinar    <EURRSD=>  93.38    93.413   +0.04%   -4.18%
                                
 Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond   CZ2YT=RR    -23 basis points to  114bps over bmk*
4-yr T-bond   CZ4YT=RR    -17 basis points to  +141bps over bmk*
8-yr T-bond   CZ8YT=RR    -7 basis points to  +269bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond   PL2YT=RR    -5 basis points to  +367bps over bmk*
5-yr T-bond   PL5YT=RR    -3 basis points to  +298bps over bmk*
10-yr T-bond PL10YT=RR    -2 basis points to  +277bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond   HU3YT=RR    -23 basis points to  +707bps over bmk*
5-yr T-bond   HU5YT=RR    -61 basis points to  +630bps over bmk*
10-yr T-bond   HU10YT=RR  -48 basis points to  +525bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1100 CET.
Currency percent change calculated from the daily domestic 
close at 1600 GMT.
 (Reporting by Krisztina Than/Sandor Peto; Editing by Andy Bruce)