CEE MARKETS 2-Crown edges up on cbank comments, other FX down

                                
 * Czech crown firms after Tuma comments
                                
 * Fitch: EMEA downside risks should not be underestimated
                                
 * Morgan Stanley recommends long RON/HUF
                                
 
  (adds fixed income)
                                
 By Marius Zaharia
                                
 BUCHAREST, Jan 19 (Reuters) - The crown edged up on Tuesday,
helped by central bank comments that Czech interest rates may be
at the bottom, while its central European peers inched lower as
a weak ZEW index in Germany dented risk appetite.
                                
 Central bank Governor Zdenek Tuma said it may be possible
that interest rates were at their lowest at their current level
of 1 percent [ID:nPRG001528], on par with the euro zone after
seven cuts totalling 275 basis points over the last 17 months.
                                
 "The governor's comments helped a bit," said a trader in
Prague.  At 1113 GMT, the crown traded at 25.843 per euro, up
0.1 percent on the day.
                                
 The Polish zloty <EURPLN=>, the Hungarian forint <EURHUF=>
and Romanian leu <EURRON=> were 0.1-0.3 percent lower, with
their recent rally pausing after the German analyst and investor
sentiment fell more than expected in January [ID:nDEP003284].
                                
 Investors watch closely data from Germany, the region's main
trading partner, for clues on the pace of a regional recovery.
                                
 Regional markets have been buoyed so far this year by an
improved economic outlook and by a higher appetite for carry
trades, but worries remain over wide budget deficits or a
spillover from Greece, hurt by its fiscal problems.
                                
 Moreover, Fitch Ratings warned on Tuesday that downside
risks in EMEA markets should not be underestimated.
                                
 "While not Fitch's central case, a double-dip recession, or
even stagnation in emerging markets, could have a negative
impact on the ratings of emerging market corporate issuers," the
agency said in a statement.
                                
 A longer-term risk is that the region could repeat its past
mistakes and rely on fx lending, which was one of the main
worries at the peak of the crisis last year. ECB Governing
Council member Ewald Nowotny warned that "nobody knows when
(central European countries) can join euro." [ID:nLDE60H2B4]
                                
 
                                
 PSYCHOLOGICAL FIRMING
                                
 Romania's leu after outperformed its peers this year, mostly
as markets priced in the disbursements of next tranches from an
international aid deal after the approval of an austerity 2010
budget last week.
                                
 "The current firming of the leu against the euro has a
psychological component more than a change in economic
fundamentals," central bank's chief economist Valentin Lazea
told online news site www.hotnews.ro on Monday.
                                
 "The psychological component comprises a better sentiment
concerning the entire Central and Eastern European region as
well as ... stop losses that some commercial banks make at
certain levels of the exchange rate."
                                
 Morgan Stanley recommended on Tuesday backing the Romanian
leu against the Hungarian forint at least for the next three
months, betting on an improved outlook for Romania and a
catching up process for the battered unit. [ID:nLDE60I0WN]
                                
 Regional debt markets were quiet, with Polish bonds firming
slightly, mostly at the low-end of the curve where yields fell 7
basis points.
                                
 "Two-year bonds strengthened as there's overliquidity in the
banking sector," said one Warsaw-based dealer. "Besides the
zloty is strong and this prompts foreigners to buy Polish
papers."
--------------------------MARKET SNAPSHOT--------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2009 
Czech crown      <EURCZK=>  25.843   25.867   +0.09%   +1.84%
Polish zloty     <EURPLN=>   4.026    4.016   -0.25%   +1.94%
Hungarian forint <EURHUF=> 267.78   267.17    -0.23%   +0.96%
Croatian kuna    <EURHRK=>   7.288    7.281   -0.1%    +0.29%
Romanian leu     <EURRON=>   4.113    4.103   -0.24%   +3.02%
Serbian dinar    <EURRSD=>  97.07    96.85    -0.23%   -1.23%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond   CZ3YT=RR   +2 basis points to  86bps over bmk*
7-yr T-bond   CZ7YT=RR    -16 basis points to  +109bps over bmk*
10-yr T-bond   CZ10YT=RR    -3 basis points to  +113bps over
bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond   PL2YT=RR    -10 basis points to  +376bps over bmk*
5-yr T-bond   PL5YT=RR    -12 basis points to  +316bps over bmk*
10-yr T-bond PL10YT=RR    -6 basis points to  +281bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1313 CET.
Currency percent change calculated from the daily domestic 
close at 1600 GMT.
                                
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 (Reporting by Reuters bureaux, writing by Marius Zaharia
Editing by Andy Bruce)