CEE MARKETS 3-Forint firms on rate hike bets, crown eases

                                
 * Rate hike expectations lift forint to 6-week high
                                
 * Zloty hovers near 4.0 vs euro, crown weakens
                                
 * EU safety net lends support to sentiment
                                
 * Central bank rate meetings next week
                                
  
                                
 (Recasts with new comments, updated prices)
                                
 PRAGUE/BUDAPEST, Dec 17 (Reuters) - Expectations of a rise
in interest rates next week boosted Hungary's forint on Friday,
with Central European assets mostly treading water ahead of a
series of monetary policy meetings.
                                
 Hungary's central bank (NBH) launched the region's first
tightening cycle since 2008 last month and may further lift its
5.5 percent base rate on Monday, while the Czech and Polish
central banks are seen holding fire on Wednesday.
                                
 The forint <EURHUF=> firmed 0.4 percent against the euro by
1434 GMT to 273, the zloty <EURPLN=> and the leu <EURRON=> were
flat at 3.987 and 4.29, respectively, while the Czech crown shed
0.15 percent to 25.193.
                                
 The forint led gains in the region this week, firming two
percent and hitting a 6-week high on Friday. The zloty firmed
one percent as it reached 3-week highs, but it stayed near the
4.0 technical and psychological level against the euro.
                                
 A slowdown in Hungary's annual wage growth in October argued
for no change in NBH rates [ID:nLDE6BG0CD], but a continued flow
of hawkish comments from Governor Andras Simor [ID:nLDE6BG0TT]
reinforced expectations for a 25 basis point rise on Dec. 20.
                                
 "The arguments from Simor sounded convincing and
determined," one Budapest-based currency dealer said. "If the
bank doesn't lift rates on Monday now, that will look strange...
the forint could correct mildly downwards (weaken) then."
                                
 Analysts in a Reuters poll earlier this week were evenly
split on whether the bank would raise rates or keep them on
hold. [ID:nSLAGNE6KN]
                                
 
                                
 INTEREST RATES WATCHED
                                
 The NBH's tightening cycle makes forint yields attractive,
but there is plenty of uncertainty over Hungary's fiscal and
monetary policy next year, dealers said.
                                
 The forint has been the region's worst-performing currency
this year with a one percent loss, while the safe-haven crown is
outperforming with gains over 4 percent despite a slide in
recent weeks.
                                
 Czechs have the lowest interest rates in Central Europe with
the base rate at 0.75 percent and the crown is often used by
investors to fund buying of higher-yielding currencies.
                                
 "People are selling heavily EUR/PLN and buying EUR/CZK, and
the same on the forint against the crown," a Prague-based dealer
said. "It is a classic game over the dead holiday period, people
are taking advantage of it."
                                
 The Polish zloty has firmed almost 3 percent this year and
most analysts believe the robustly growing Polish economy and
expected central bank interest rate tightening will make it the
region's top winner next year. [ID:nLDE6B029T]
                                
 Stock markets were mixed, with Prague's <.PX> equity index
shedding one percent, Bucharest's <.BETI> firming 0.2 percent,
while the Warsaw and Budapest bourses were flat.
                                
 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.
                                
--------------------------MARKET SNAPSHOT--------------------
 Currency                    Latest   Previous Local    Local
                                
                                   close    currency currency
                                
                                            change   change
                                
                                            today    in 2010 
 Czech crown      <EURCZK=>  25.193   25.156  -0.15%   +4.47%
 Polish zloty     <EURPLN=>   3.987    3.987   0%      +2.93%
 Hungarian forint <EURHUF=> 273      274.03   +0.38%   -0.97%
 Croatian kuna    <EURHRK=>   7.383    7.391  +0.11%   -1%
 Romanian leu     <EURRON=>   4.29     4.29    0%      -1.23%
 Serbian dinar    <EURRSD=> 105.52   104.41   -1.05%   -9.14%
                                
 Yield Spreads
 Czech treasury bonds <0#CZBMK=>
 2-yr T-bond   CZ2YT=RR    -3 basis points to  79bps over bmk*
 7-yr T-bond   CZ7YT=RR   +10 basis points to  +82bps over bmk*
 10-yr T-bond  CZ9YT=RR   +3 basis points to  +83bps over bmk*
 Hungarian treasury bonds <0#HUBMK=>
 3-yr T-bond   HU3YT=RR   +1 basis points to  +629bps over bmk*
 5-yr T-bond   HU5YT=RR    -4 basis points to  +557bps over bmk*
 10-yr T-bond  HU10YT=RR  0 basis points to  +472bps over bmk*
 *Benchmark is German bond equivalent.
 All data taken from Reuters at 1534 CET.
 Currency percent change calculated from the daily domestic 
close at 1700 GMT.
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 (Reporting by Reuters bureaus, writing by Jason Hovet/Sandor
Peto; Editing by Patrick Graham)