CEE MARKETS 2-Forint outperforms with interest rates in focus

                                
 * Hungarian forint, bonds firmer ahead of rate meeting
                                
 * Zloty retreats despite expectations of hikes in Poland
                                
 * Romania pays higher yield at bond tender, seen positive
                                
 
 (Adds quotes, zloty fall, bond yields)
                                
 By Luiza Ilie
                                
 BUCHAREST, Feb 18 (Reuters) - The Hungarian forint
outperformed other emerging European currencies on Friday and
bonds firmed ahead of a rate-setting meeting in Budapest next
week, while the Polish zloty retreated from early morning gains.
                                
 The forint has risen faster than its peers this year on
hopes a government fiscal plan will strengthen public finances
but delays in unveiling the details, and signs that monetary
tightening could be over, have raised some concerns recently.
                                
 Analysts polled by Reuters earlier this week forecast the
National Bank of Hungary (NBH) will keep rates on hold at its
meeting on Monday, after three quarter-point hikes since
November [ID:nLDE71F2ML]
                                
 The forint <EURHUF=> was 0.2 percent stronger against the
euro at 269.58 by 1030 GMT and traders saw room for more firming
on Friday, while bonds strengthened on expectations that the
central bank would not raise rates further.
                                
 "Liquidity is low but some domestic players have reappeared
especially on the short end of the curve in the past three days,
and yields dropped by about 20 basis points," one trader said.
                                
 In Poland, the zloty <EURPLN=> was down 0.1 percent on the
day, changing course from morning gains as dealers said some
hedge funds were closing short positions.
                                
 The outlook for Polish interest rates pointed strongly
toward another rate rise in March after inflation surged to its
highest in nearly two years. Central banker Jan Winiecki said on
Thursday he would vote for a hike in March. [ID:nLDE71G1GC]
                                
 Analysts said Poland's producer prices and industrial output
data for January, expected at 1300 GMT, could further anchor
expectations of a rate hike.
                                
 "The expected Polish rate hike in March could help drive
other currencies higher," said one trader in Bucharest. "But at
at first glance the trend seems to be gradually going that way
anyway for the region."
                                
 The Czech crown <EURCZK=> was down 0.2 percent and the
Romanian leu up 0.1 percent.
                                
 The Czech centre-right coalition agreed on the outline of
pension reform on Thursday that will unify VAT at the country's
higher rate. The deal, which goes to the government next week,
should be positive in the longer term for the crown Czech
government bonds. [ID:nLDE71G1U6]
                                
 In Romania, the finance ministry paid the highest yield
since early last year, 7.35 percent, at a 10-year bond tender on
Thursday, which analysts said was a positive sign after debt
managers capped yields for most of 2010. [ID:nBUC003858]
 --------------------------MARKET SNAPSHOT--------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2011 
Czech crown      <EURCZK=>   24.331    24.288  -0.18%   +2.75%
Polish zloty     <EURPLN=>    3.911     3.908  -0.08%   +1.2%
Hungarian forint <EURHUF=>  269.85    270.1    +0.09%   +3.01%
Croatian kuna    <EURHRK=>    7.407     7.407     0%    -0.36%
Romanian leu     <EURRON=>    4.248     4.249  +0.02%   -0.35%
Serbian dinar    <EURRSD=>   103.59    103.36  -0.22%   +2.26%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond   CZ2YT=RR    -16 basis points to  39bps over bmk*
7-yr T-bond   CZ7YT=RR    -9 basis points to  +85bps over bmk*
10-yr T-bond   CZ9YT=RR    -8 basis points to  +88bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond   PL2YT=RR    0 basis points to  +378bps over bmk*
5-yr T-bond   PL5YT=RR    -1 basis points to  +348bps over bmk*
10-yr T-bond PL10YT=RR    0 basis points to  +307bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond   HU3YT=RR    -6 basis points to  +514bps over bmk*
5-yr T-bond   HU5YT=RR    -5 basis points to  +480bps over bmk*
10-yr T-bond   HU10YT=RR  -2 basis points to  +424bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1153 CET.
Currency percent change calculated from the daily domestic 
close at 1600 GMT.
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 (Reporting by Reuters bureaus; Editing by Catherine Evans)