CEE MARKETS 2-Zloty, forint up on better sentiment; bonds eyed

                                
 * Zloty, forint ride wave of risk sentiment
                                
 * Czech, Polish bond sales awaited
                                
 
 (Adds details, bonds)
                                
 By Jason Hovet
                                
 PRAGUE, May 20 (Reuters) - The Polish zloty and Hungarian
forint extended gains on Wednesday, while investors' greater  
appetite for central European assets was set to be tested in
Polish and Czech bond auctions at midday.
                                
 The zloty <EURPLN=> rose 0.4 percent to bid at 4.355 to the
euro by 0851 GMT, and earlier hit its highest since May 11. The
forint <EURHUF=> gained 0.3 percent from Tuesday's domestic
close to 276.8 to the euro, near a two-week high.
The zloty and forint have led central European gains in a
risk rally since March after being the hardest hit in the
selloff of currencies from record highs last summer.
                                
 The currencies have gained 3-4 percent this week on growing
hopes that the global economic downturn is past its worst.
                                
 "Markets are still focusing on the fact that we see some
bottom building ... but they are still not looking through
this," said Ulrich Leuchtmann, head of foreign exchange research
at Commerzbank in Frankfurt.
                                
 But investors were expected to gauge Polish industrial
output due at 1200 GMT, watching for weaker signals after
contractions in recent months which confirmed a sharp slowdown
in the region's largest economy.
                                
 Polish bonds were stable before a tender offering 1.0-1.8
billion zlotys in paper maturing in 2019 and 2029 due at midday
(1000 GMT).
                                
 The Czech Republic is also offering 8 billion crowns of a
new 15-year bond.
                                
 "We certainly expect much lower demand than in last week's
3-year papers as domestic accounts concentrate their 'carry
purchases' on shorter instruments," Komercni Banka traders wrote
in an early note on the Czech auction.
                                
 "Also the steepening threat and the recent steepening in the
EU curve, along with next year's budget deficits outlook should
keep the demand rather low."
                                
 BUDGET WATCH
                                
 The Czech crown <EURCZK=> traded up 0.3 percent, while
Romania's leu <EURRON=> dipped 0.2 percent to 4.157 to the euro.
                                
 Stock markets edged higher with a 1 percent gain in Prague
<.PX> and Warsaw <.WIG20>.
                                
 Dealers said stocks would continue to drive markets, while
in Hungary the budget balance for April will also be watched.
                                
 Earlier this week Hungary agreed a deal with the
International Monetary Fund and the European Union to let its
budget deficit rise to 3.9 percent of GDP.
                                
 Later on Wednesday, Romania is also expected to release a
revised convergence report, following its IMF-led loan deal.
                                
 Finance Minister Gheorghe Pogea said on Tuesday the country
had no plans to ask for more lenient fiscal conditions in its
IMF deal. [ID:nLJ239357]
                                
 Falling western demand for central European-made goods has
strained the region's export-driven economies, cutting into
government revenues. 
                                
 Poland is set to amend its 18.2 billion zloty budget deficit
target in June or July, and analysts expect that goal to be
raised. [ID:nLK687308]
                                
 
--------------------------MARKET SNAPSHOT--------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2009 
Czech crown      <EURCZK=>   26.592   26.669  +0.29%    +0.61%
Polish zloty     <EURPLN=>    4.355    4.372  +0.39%    -5.51%
Hungarian forint <EURHUF=>  276.8    277.60   +0.29%    -4.79%
Croatian kuna    <EURHRK=>    7.361    7.362  +0.01%    +0.05%
Romanian leu     <EURRON=>    4.157    4.15   -0.17%    -3.43%
Serbian dinar    <EURRSD=>   94.06    94.105  +0.05%    -4.87%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond   CZ2YT=RR    -6 basis points to  155bps over bmk*
4-yr T-bond   CZ4YT=RR   +1 basis points to  +189bps over bmk*
8-yr T-bond   CZ8YT=RR    -3 basis points to  +266bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond   PL2YT=RR    -4 basis points to  +432bps over bmk*
5-yr T-bond   PL5YT=RR    -4 basis points to  +330bps over bmk*
10-yr T-bond PL10YT=RR    -3 basis points to  +289bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1054 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 David Stamp)