CEE MARKETS 2-FX up on econ prospects, crown hits 2009 high

                                
 * PMIs boost FX, crown touches 2009 high
                                
 * JP Morgan upgrades recommendation for region's equities
                                
 
  (Adds fixed income, JP Morgan upgrade)
                                
 By Dagmara Leszkowicz
                                
 WARSAW, Aug 21 (Reuters) - Central Europe currencies rose on
Friday, with the Czech crown briefly touching a 2009 high after
a strong German PMI survey lifted prospects for the region's
export economies.
                                
 At 0924 GMT the Czech crown <EURCZK=> was bid up 0.4 percent
at 25.467 to the euro, after trading as high as 25.375, its
strongest since Dec 1. The zloty <EURPLN=> rose 0.3 percent to
4.122 and Romania's leu <EURRON=> was up at 4.229 per euro.
                                
 Hungary's forint <EURHUF=> was up 0.4 percent, with local
trade closed due to a holiday.
                                
 Currencies extended gains after a surprisingly strong
reading of German manufacturing and services activity spurred
optimism of an improving euro zone economy, boding well for
central Europe's export-reliant economies. [ID:nLAG003678]
                                
 Stocks also rose, with Warsaw <.WIG20> jumping more than 2
percent and Prague <.PX> cutting losses.
                                
 "The German and also French data is supporting everything,"
said a Stockholm-based central European currency dealer. "People
were a bit hesitant after negative openings in Asia but that has
been blown away."
                                
 Central Europe's economies have all fallen sharply due to
diminishing demand for their goods, with only Poland -- home to
the region's largest domestic consumer base -- avoiding
recession but still slowing sharply.
                                
 But data from the euro zone and central Europe in the past
month has given the first glimmers of the start of recovery.
                                
 JP Morgan upgraded Poland, Czech Republic and Hungary to
overweight from underweight on Friday due to narrowing credit
spreads and stronger euro zone economic growth. [ID:nWNAB2536].
                                
 
                                
 RATES NEXT WEEK
                                
 Markets had generally quieted this week as investors took
stock of upcoming central bank policy meetings.
                                
 Hungary is expected to cut 50 basis points from the main
rate to 8 percent on Monday as the central bank tries to address
a severe recession, although analysts said a larger reduction
would not be a surprise. [ID:nLAG003669]
                                
 Poland's central bank was already deeply split on the need
for another reduction in interest rates when it cut in June,
voting results showed on Thursday. 
                                
 That added to evidence that the bank may hold off further
easing due to rising price pressure. [ID:LK428251]
                                
 The bank, which has indicated it is still in an easing bias,
meets again on Wednesday next week.
                                
 "The economic downturn price pressure does not seem to be
easing. We therefore do not expect to see a change at the next
rate decision next Wednesday," Commerzbank wrote on Friday.
                                
 "EUR-PLN is currently trapped in a range between 4.07 and
4.22. While the central bank maintains its easing bias a
sustainable breach to the downside seems unlikely."
                                
 Expectations of unchanged interest rates at the meeting next
week ended a rally on the Polish bond market. 
                                
 The country's paper was broadly unchanged on Friday and
dealers said activity on the market is very limited.
                                
 "I don't expect significant changes today," said Remigiusz
Zalewski, dealer at BRE bank in Warsaw. "If a positive situation
on the FX market remains, bonds may rise further."
                                
 Czech bonds were a touch stronger stronger, tracking the
crown.
                                
 
--------------------------MARKET SNAPSHOT--------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2009 
Czech crown      <EURCZK=>   25.467   25.578  +0.44%   +5.05%
Polish zloty     <EURPLN=>    4.122    4.136  +0.34%   -0.17%
Hungarian forint <EURHUF=>  269.97   271.06   +0.4%    -2.38%
Croatian kuna    <EURHRK=>    7.322    7.333  +0.15%   +0.59%
Romanian leu     <EURRON=>    4.229    4.235  +0.14%   -5.07%
Serbian dinar    <EURRSD=>   92.927   93.003  +0.08%   -3.71%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond   CZ2YT=RR    -4 basis points to  58bps over bmk*
4-yr T-bond   CZ4YT=RR    -42 basis points to  +118bps over bmk*
8-yr T-bond   CZ8YT=RR   +4 basis points to  +257bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond   PL2YT=RR    -3 basis points to  +363bps over bmk*
5-yr T-bond   PL5YT=RR    -3 basis points to  +316bps over bmk*
10-yr T-bond PL10YT=RR    -2 basis points to  +281bps over bmk*
All data taken from Reuters at 1127 CET.
Currency percent change calculated from the daily domestic 
close at 1500 GMT.
                                
 
                                
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 (Reporting by Reuters bureaus; Writing by Dagmara
Leszkowicz; Editing by Toby Chopra)