CEE MARKETS 2-Zloty hits 2-week low on options, leads FX lower

                                
 * Currency options weigh on zloty
                                
 * FX, stocks lower on risk aversion
                                
 * Bonds steady
                                
 
  (Adds details, fixed income)
                                
 WARSAW, May 28 (Reuters) - The Polish zloty fell to a
two-week low on Thursday and broke a key support level, hit by
concerns over the expiration of currency options and a drop in
global appetite for risk.
                                
 The Hungarian forint and Czech crown followed the zloty
lower, while stocks dropped as investors worried over the state
of the global economy, still under scrutiny given concerns over
expanding debt in the United States. [ID:nN27604709]
                                
 The zloty <EURPLN=> fell 1.1 percent from Wednesday's
domestic close to bid at 4.486 to the euro by 0913 GMT. It had
hit the key technical support level of 4.5 to the euro in
earlier trade.
                                
 Hungary's forint <EURHUF=> fell 0.6 percent against the
euro, while the Czech crown recovered early losses to bid and
Romania's leu was down at 4.193.
                                
 Dealers said the zloty was hit by an end of month sell-off
caused by the expiry of currency options, while nerves were up
ahead of a first quarter GDP release on Friday after peers all
showed steep contractions in that period.
                                
 "It is likely the effect of FX options that are expiring at
the end of the month, but there are also concerns in the market
over the real condition of the country's economy," said Jakub
Wiraszka, dealer at BRE bank in Warsaw.
                                
 The zloty has fallen by up to a third since hitting record
highs last summer, putting a strain on Polish companies that had
bet on more appreciation through currency options.
                                
 The Polish financial authority said in April companies were
exposed to around 4.5 billion zlotys ($1.41 billion) in soured
options, half of earlier estimates. [ID:nLS483867]
                                
 "It seems the options story traditionally comes back at the
end of the month and even though the problem diminishes, it
still exists," said Henryk Sulek, dealer at Millennium Bank in
Warsaw.
                                
 
                                
 NEXT MOVE
                                
 Stocks in the region also trended lower with 1 percent falls
in Budapest and Warsaw, following U.S and Asian shares lower.
                                
 Polish bonds were little changed from Wednesday, while Czech
yields edged higher.
                                
 Central Europe's export-heavy economies are counting on a
pickup in western consumer demand to lift them from recession,
and signs the global downturn is stabilising have helped the
region rebound in the past few months. But asset values have
swung along with global risk appetite.
                                
 Still, pressure is expected to stay with the region as
governments battle rising joblessness and widening deficits.
                                
 The Polish central bank left key interest rate unchanged for
a second consecutive month on Wednesday due to inflation
concerns but indicated it stayed in an easing bias.
                                
 It also lowered the required reserve rate by 50 basis points
to 3.0 percent to boost banking liquidity. [ID:nLR185908]
                                
 "Due to the central bank's choice of monetary policy EUR/PLN
should however remain sensitive to changes in risk aversion,"
analysts at Commerzbank wrote in a morning note.
                                
 
--------------------------MARKET SNAPSHOT--------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2009 
Czech crown      <EURCZK=>   26.733   26.732   0%      +0.07%
Polish zloty     <EURPLN=>    4.486    4.436  -1.11%    -8.27%
Hungarian forint <EURHUF=>  284.43   282.65   -0.63%    -7.34%
Croatian kuna    <EURHRK=>    7.328    7.32   -0.11%    +0.5%
Romanian leu     <EURRON=>    4.193    4.18   -0.31%    -4.26%
Serbian dinar    <EURRSD=>   94.32    94.527  +0.22%    -5.13%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond   CZ2YT=RR   +5 basis points to  140bps over bmk*
4-yr T-bond   CZ4YT=RR   +1 basis points to  +160bps over bmk*
8-yr T-bond   CZ8YT=RR   +6 basis points to  +257bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond   PL2YT=RR   +3 basis points to  +407bps over bmk*
5-yr T-bond   PL5YT=RR    0 basis points to  +315bps over bmk*
10-yr T-bond PL10YT=RR    -5 basis points to  +269bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1117 CET.
Currency percent change calculated from the daily domestic 
close at 1600 GMT.
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 (Reporting by Reuters bureaus, Writing by Dagmara Leszkowicz
in Warsaw and Jason Hovet in Prague; editing by Patrick Graham)