CEE MARKETS 1-FX fall after stocks rally reverses

                                
 * Zloty leads losses after stocks rally ends
                                
 * Czech govt agreement seen in doubt
                                
 * Hungary output falls sharply, forint extends loss
                                
 
                                
 WARSAW, April 7 (Reuters) - The Polish zloty led losses in
central Europe on Tuesday, as currencies pulled back from recent
gains on after a rally in stocks lost steam.
                                
 In Hungary, the forint extended falls after data showed a
sharp drop in industrial output in February [ID:nL7340126],
while investors also cautiously eyed a Czech interim government
agreement that fell into some doubt late on Monday.
                                
 At 0751 GMT the Polish zloty <EURPLN=> dropped 1.8 percent
down against the euro to 4.5, while the Czech crown <EURCZK=>
dipped 0.4 percent from Monday's domestic close.
                                
 Hungary's forint <EURHUF=> was off 1.3 percent at 297.4 per
euro and Romania's leu <EURRON=> was 0.2 percent down.
                                
 "I expect this is a regular correction as currencies in the
region are following weaker euro to the dollar," said one
Warsaw-based dealer.
                                
 Stocks in the region opened weaker with Warsaw's blue-chip
WIG20 <.WIG20) falling 1 percent and indices in Prague <.PX> and
Budapest <.BUX> down more than 0.5 percent.
                                
 Currencies have strengthened from multi-year lows in the
past month as investors appetite for riskier emerging assets
grew on hopes the world economy is stabilising, however banking
stocks came under renewed pressure after a sector downgrade from
a prominent analyst on Monday.
                                
 The fall undid some gains from a confidential International
Monetary Fund report cited by the Financial Times that
recommended struggling emerging EU members euroise, although
analysts and dealers downplayed its necessity in central Europe.
                                
 Late on Monday a European central banker, Ewald Nowotny,
said unilateral adoption was legally impossible and would hurt
the euro zone. [ID:nL6497311]
                                
 In the Czech Republic, where political pressures have eased,
two smaller parties late on Monday pulled out of a deal with the
two main parties to form a caretaker administration before an
October early election. [ID:nL6606108]
                                
 But dealers said currencies could return to strengthening.
"If stocks continue to rise and there's a moderate optimism on
the global market, we may expect currencies to rise further,"
one dealer said.
                                
 Commerzbank analysts said in a note emerging European
currencies, even though they were unable to defend their
previous gains after the G20 summit last week that pledged more
funds for emerging economies, still have power to rebound.
                                
 "We assume that the improved sentiment created by the summit
is not just a temporary phenomenon even though it is obvious
that not all difficulties have been overcome yet," they wrote in
a morning note.
----------------------MARKET SNAPSHOT-------------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2009 
Czech crown      <EURCZK=>   26.625   26.532  -0.35%    +0.48%
Polish zloty     <EURPLN=>    4.502    4.419  -1.84%    -8.6%
Hungarian forint <EURHUF=>  297.36   293.54   -1.28%   -11.37%
Croatian kuna    <EURHRK=>    7.425    7.43   +0.07%    -0.81%
Romanian leu     <EURRON=>    4.163    4.156  -0.17%    -3.57%
Serbian dinar    <EURRSD=>   92.953   93.54   +0.63%    -3.74%
All data taken from Reuters at 0955 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)