CEE MARKETS 2-Forint leads FX gains on rate rise expectations

                                
 * Markets climb as EU plans permanent safety net
                                
 * Forint leads on rate hike expectations
                                
 * Stocks post modest gains
                                
 
  (Adds bonds, details, updates prices)
                                
 PRAGUE, Dec 17 (Reuters) - The Hungarian forint rose on
Friday, leading modest gains in emerging Europe on expectations
of a rate hike and after the European Union agreed on plans for
a permanent financial safety net, bolstering market sentiment.
EU leaders agreed to create a permanent mechanism from 2013
to resolve debt problems, and the European Central Bank moved to
increase its firepower to fight the debt crisis that has rocked
the euro zone and hit appetite for central European assets.
[ID:nLDE6BF2A3]
                                
 But the mood was tempered by a Moody's rating downgrade for
Ireland, and the meeting of EU leaders provided no new measures
to deal with the immediate crisis in the euro zone periphery.
                                
 Central Europe states have debt levels at or below the EU
average, but most have faced questions over the fiscal outlook
and Hungary and Romania have both needed international aid to
get through the financial crisis in the past two years.
                                
 The forint <EURHUF=> gained half a percent early before
bidding up 0.2 percent on the day at 273.5 per euro by 1026 GMT.
The Polish zloty <EURPLN=> added 0.1 percent to 3.984 per euro,
while the Czech crown <EURCZK=> and Romanian leu <EURRON=> were
a touch firmer.
                                
 Stock markets edged up around half a percent, with Prague
<.PX> near its highest level since August.
                                
 Dealers said the forint also received support from market
expectations for further monetary tightening after the central
bank in Hungary surprised markets by kicking off a rate hike
cycle with a quarter point rise last month.
"A rate increase could strengthen the forint further towards
270 but I don't think that it would have an immediate impact on
bonds," a Budapest trader said.
                                
 Analysts were evenly split on whether the bank would raise
rates for a second month in a row. The main rate stands at 5.5
percent. [ID:nSLAGNE6KN]
                                
 
                                
 2010 RATES FINALE
                                
 Hungarian bonds were steady after wage growth figures in the
morning surprised to the downside and may help tip the balance
towards a "hold" decision on Monday, some analysts said.
                                
 Central bank Governor Andras Simor told a business
conference on Friday that if future wage and price decisions are
consistent with the requirement of price stability, a tightening
cycle of fewer steps would be sufficient for the bank to meet
its medium-term inflation target. [ID:nTST002040]
                                
 Hungary kicks off a week of rate decisions in central Europe
on Monday, followed by Polish and Czech central bank meetings
where analysts see no change before tightening begins some time
next year. [ID:nLDE6BF03V] [ID:nLDE6BF0ME]
Poland was due to release industrial output data at 1300
GMT, which may push rate hike expectations forward.
                                
 "Should today's data on industrial production and producer
price inflation come in above expectations this might provide a
further downward thrust for EUR-PLN as this is likely to lead to
a refuelling of speculation about an imminent rate rise,"
Commerzbank said in a daily note.
                                
 
--------------------------MARKET SNAPSHOT--------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2010 
Czech crown      <EURCZK=>   25.143   25.156  +0.05%    +4.67%
Polish zloty     <EURPLN=>    3.984    3.987  +0.08%    +3.01%
Hungarian forint <EURHUF=>  273.5    274.03   +0.19%    -1.15%
Croatian kuna    <EURHRK=>    7.385    7.391  +0.08%    -1.03%
Romanian leu     <EURRON=>    4.289    4.29   +0.02%    -1.2%
Serbian dinar    <EURRSD=>  104.05   104.41   +0.35%    -7.85%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond   CZ2YT=RR    -20 basis points to  62bps over bmk*
7-yr T-bond   CZ7YT=RR    -5 basis points to  +67bps over bmk*
10-yr T-bond   CZ9YT=RR    -1 basis points to  +80bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond   HU3YT=RR    -1 basis points to  +627bps over bmk*
5-yr T-bond   HU5YT=RR    -2 basis points to  +559bps over bmk*
10-yr T-bond   HU10YT=RR  -2 basis points to  +474bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1128 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 Ruth Pitchford)