RPT-CEE MARKETS 3-Latvian budget cut pledges dampen FX fallout

                                
 (repeats to additional subscribers)
                                
 * Latvia pledges more effort to meet goals, easing pressure
                                
 * Czech cbank sees negative CPI in Oct, rate cuts seen
                                
 * Poland places Eurobonds worth 910 mln euros
                                
 
                                
 (Recasts with Czech CPI, Polish bonds, updates market)
                                
 By Marius Zaharia and Marton Dunai
                                
 BUCHAREST/BUDAPEST, Oct 9 (Reuters) - Central European
currencies weakened on Friday, led by the Polish zloty, on fears
that Latvia's woes might weigh on the region, but the reaction
was much milder than in June when the crisis last flared.
                                
 "The risk of Latvia going nuclear and us getting the fallout
has abated," a dealer in Budapest said. "We will test at one
point whether there is contagion or not, but not now."
                                
 Currencies started to weaken on Thursday, when Latvia said
it was working on more budget cuts and was considering a plan to
bail out homeowners at the expense of banks. [ID:nL8188838]
                                
 The dispute temporarily revived currency devaluation fears
and some risk aversion in the region, which was also under
pressure from a stronger dollar, but nerves were already cooling
off ahead of the weekend.
                                
 Latvian Prime Minister Valdis Dombrovskis pledged more
measures to reign in public spending and win the approval of its
foreign lenders. [ID:nL9592067]
                                
 At 1320 GMT, the zloty <EURPLN=> traded down 0.4 percent on
the day against the euro, the Czech crown <EURCZK=> 0.3 percent
lower, while the Hungarian forint <EURHUF=> and the Romanian leu
<EURRON=> slid 0.1 percent each.
                                
 The moves add to losses of up to 0.4 percent on the day on
Thursday, far less than in June when central European markets
were pressured for weeks by Latvia's devaluation fears.
                                
 Analysts say the region appears largely insulated from
Latvia's woes as the worst of the global crisis had passed and
investors will better discern between economies. [ID:nL7628198]
                                
 "It is mainly a market reflex this time round," Commerzbank
said in a note. "The current weakness of HUF, CZK and PLN
therefore provides short term potential for appreciations."
                                
 
                                
 EYES ON CROWN
                                
 In the Czech Republic, expectations for a new rate cut from
the current record low of 1.25 percent increased after September
inflation hit zero on the year, and the central bank in Prague
said inflation could be negative in October. [ID:nPRG003689]
                                
 That followed a warning from central bank Governor Zdenek
Tuma, who said that the strong crown could freeze inflation in
negative territory for a while [ID:nL9379214].
                                
 The crown has lost almost 1.5 percent since Monday, when
Tuma said the bank's board had discussed the possibility of
market intervention.
                                
 Risk of another rate cut, Baltic worries and intervention
talk could lead to further crown weakening, Komercni Banka
trader Frantisek Kanka said. Some dealers see the crown going
weaker than 26 per euro next week.
                                
 Bonds in Poland tracked the zloty and yields ticked slightly
higher. The country also placed Eurobonds worth 910 million
euros to a select group of private investors. [ID:nL9573091]
                                
 Czech and Hungarian debt was popular despite the currency
unease, with yields dropping by as much as 15 basis points
across the curve.
                                
 Hungarian bonds continued their recent gains after a
successful auction on Thursday, despite recent concerns that a
market rally has been overdone. [ID:nL8186691]
                                
 Easing worries over a Baltic meltdown contributed to gains.
                                
 The state debt management agency AKK said it would make the
most of the rally and meet 2009 financing needs while the market
was favourable, then possibly cutting bond issues at the end of
the year. [ID:nBUD005157]
                                
 Markets also eyed a no-confidence vote for Romania's
minority government after the ruling coalition fell apart.
[ID:nL7608185]
--------------------------MARKET SNAPSHOT--------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2009 
Czech crown      <EURCZK=>   25.878    25.804   -0.29%   +3.38%
Polish zloty     <EURPLN=>   4.256    4.24   -0.38%    -3.31%
Hungarian forint <EURHUF=>   270.65    270.35   -0.11%    -2.62%
Croatian kuna    <EURHRK=>   7.255    7.255   0%   +1.52%
Romanian leu     <EURRON=>   4.278    4.275   -0.07%    -6.16%
Serbian dinar    <EURRSD=>   93.03    92.89   -0.15%    -3.82%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond   CZ3YT=RR    -2 basis points to  143bps over bmk*
7-yr T-bond   CZ7YT=RR    -15 basis points to  +160bps over bmk*
10-yr T-bond   CZ10YT=RR    -14 basis points to  +150bps over
bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond   PL2YT=RR    -7 basis points to  +380bps over bmk*
5-yr T-bond   PL5YT=RR    -4 basis points to  +336bps over bmk*
10-yr T-bond PL10YT=RR    -2 basis points to  +306bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond   HU3YT=RR    -7 basis points to  +528bps over bmk*
5-yr T-bond   HU5YT=RR    -4 basis points to  +499bps over bmk*
10-yr T-bond   HU10YT=RR  -2 basis points to  +450bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1520 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;
Editing by Andy Bruce)