CEE MARKETS 3-Zloty rises on GDP, stocks rally but caution seen

                                
 * GDP data sends zloty to day's high, WIG20 jumps
                                
 * Crown, Czech bonds shake off output, budget woes
                                
 
 (Updates throughout)
                                
 By Jason Hovet
                                
 PRAGUE, Aug 28 (Reuters) - The Polish zloty jumped on Friday
on the back of stronger-than-expected economic growth in the
second quarter, the latest data showing central Europe has
likely left behind the worst of the economic crisis.
                                
 Poland, the region's largest economy and the only to have
avoided recession, grew 1.1 percent year-on-year between April
and June, double the pace analysts expected and buoyed by its
larger consumer base. [ID:nLS581086] 
                                
 The data was in sharp contrast to contractions felt by
export-oriented neighbours like the Czech Republic and Hungary,
and built up expectations the Polish central bank was at the end
of monetary easing, which weakened shorter-dated bonds.
                                
 The zloty <EURPLN=> bid up 1 percent on the day at 4.078 to
the euro by 1343 GMT -- its biggest gain in three weeks. The
blue-chip index <.WIG20> rallied to a 2.5 percent gain.
                                
 "We've seen some funds stopping out of long (euro positions)
today," said a London-based dealer, adding the zloty had
potential to firm to around 4.02 next week. "The market seems
much happier to get lower (stronger) at the moment."
                                
 The Czech crown <EURCZK=> added 0.4 percent, while Hungary's
forint <EURHUF=> dipped 0.1 percent and Romania's leu <EURRON=>
was a touch up at 4.214 per euro.
                                
 After rallying behind global markets in the summer as
economic signs started pointing up, investors have become
cautious near the end of quieter summer trade, which can often
exaggerate moves due to lower liquidity.
                                
 
                                
 CAUTIOUSLY OPTIMISTIC
                                
 The zloty has added 9 percent since June 1, the crown 5
percent and the forint 3 percent. Strategists still see space
for appreciation into the fourth quarter, although an expected
choppy road back to even moderate economic growth could weigh.
                                
 "We are more cautious into the year-end... The economic
readings may turn sour as the emergence of sustained global
demand remains doubtful," Societe Generale analysts wrote in a
weekly note.
                                
 Czech industrial data on Friday showed this, with output
dropping by a more-than-expected 18.4 percent year-on-year in
July, accelerating from June's 12.2 percent fall as analysts
said western scrap subsidies that had boosted car exports
started to fade. [ID:nLS137302]
                                
 "The market is still divided (on whether the worst has
passed)," a Prague fixed income dealer said. "We still have
overcapacities and unemployment is rising."
                                
 Rising budget deficits also remain a risk for a region once
on cruise control to euro adoption. Polish Prime Minister Donald
Tusk warned on Friday the 2010 deficit would be wider than this
year, already hiked 50 percent from earlier estimates.
                                
 On Czech markets, bonds reacted little to news the Czech
2010 draft budget would be submitted with a wider central gap,
corresponding to an overall fiscal deficit of around 7 percent
of GDP, which is mostly priced in. [ID:nLS523431]
                                
 In Hungary, which along with Romania has secured IMF funds
in the economic crisis, the government has reached general
agreement with the ruling Socialists on spending cuts to lower
Hungary's budget deficit to 3.8 percent of GDP. [ID:nLS656485]
                                
 
--------------------------MARKET SNAPSHOT--------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2009 
Czech crown      <EURCZK=>   25.35    25.458  +0.43%   +5.53%
Polish zloty     <EURPLN=>    4.078    4.117  +0.96%   +0.91%
Hungarian forint <EURHUF=>  271.19   270.88   -0.11%   -2.82%
Croatian kuna    <EURHRK=>    7.355    7.335  -0.27%   +0.14%
Romanian leu     <EURRON=>    4.214    4.221  +0.17%   -4.74%
Serbian dinar    <EURRSD=>   93.13    93.227  +0.1%    -3.92%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond   CZ2YT=RR   +3 basis points to  76bps over bmk*
4-yr T-bond   CZ4YT=RR   +24 basis points to  +156bps over bmk*
8-yr T-bond   CZ8YT=RR   +6 basis points to  +259bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond   PL2YT=RR   +7 basis points to  +378bps over bmk*
5-yr T-bond   PL5YT=RR   +1 basis points to  +319bps over bmk*
10-yr T-bond PL10YT=RR    0 basis points to  +281bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond   HU3YT=RR   +9 basis points to  +640bps over bmk*
5-yr T-bond   HU5YT=RR   +20 basis points to  +585bps over bmk*
10-yr T-bond   HU10YT=RR +5 basis points to  +492bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1546 CET.
Currency percent change calculated from the daily domestic 
close at 1500 GMT.

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 (Reporting by Reuters bureaus, writing by Jason Hovet; Editing
by Chris Pizzey)