CEE MARKETS 2-Forint falls after Hungary downgrade

                                
 * Forint underperforms after Hungary downgraded on Tuesday
                                
 * Zloty edges down, pressure from options story remains
                                
 * Crown inches up as Czechs get closer to a deal on new govt
                                
 
 (adds detail, quotes, fixed income)
                                
 By Marius Zaharia
                                
 BUCHAREST, April 1 (Reuters) - Hungary's forint fell more
than its regional peers on Wednesday, a day after ratings agency
Moody's downgraded Budapest, while political woes surrounded an
upcoming change in government.
                                
 On Tuesday, Moody's downgraded the Hungarian sovereign to
Baa1, following a cut by Standard & Poor's to just one notch
above junk on Monday, with both agencies giving a negative
outlook to Hungarian assets.
                                
 The ratings downgrades highlight the problems facing the
incoming government of Gordon Bajnai, who already said painful
but immediate steps have to be taken to put the economy on the
right track.
                                
 "Taking into account substantial political uncertainty and a
likely deep recession in 2009, we believe there is a risk of
further downgrades in the coming months," Citi said in a note.
                                
 By 0852 GMT the forint <EURHUF=> traded 0.4 percent weaker
from the domestic close at 308.1 per euro, after hitting an
intra-day low of 309.1 earlier in the session.
                                
 "Fitch will probably come through soon, which always evokes
some sort of market reaction," a dealer in Budapest said.
                                
 The Polish zloty <EURPLN=> edged down and deputy governor
Witold Kozinsky said on Tuesday it would remain volatile because
of concerns over currency options taken by exporters against
firming when the unit flirted with record highs last year.
                                
 "(It is) one of the major issues hitting the local currency
in the past months ... which is why we have been turning
somewhat more cautious on Poland exposure in the past weeks,"
Chevreux said in a research note.
                                
 The crown <EURCZK=> added 0.2 percent to its Tuesday gains
after news that the Czech parties there were close to a deal on
a new government. [ID:nLV451771]
                                
 The Romanian leu <EURRON=> was steady a day after Bucharest
held rates steady at 10 percent to keep pressure off the
currency.
                                
 Economists expect most central banks in the region to
refrain from further easing monetary policies to prevent
additional pressure on the battered currencies.
                                
 Romania, which had its credit ratings downgraded to below
investment grade, last week followed Hungary in securing a 20
billion euro IMF-led aid package that was accompanied by a
pledge from foreign banks to keep their exposure there.
                                
 Data on Wednesday showed manufacturing slowed its decline in
Czech Republic [ID:nL1380527] and Hungary [ID:nBUD002875] and
rose to a five-month high in Poland [ID:nLV689301], but still
marked a very weak first quarter across the region.
                                
 Hungarian bonds firmed ahead of the regular buyback auction
from the state debt management agency AKK. Yields narrowed
especially on the short end, by about 10 to 15 points.
                                
 Czech bonds were quiet ahead of a midday auction, with
dealers expecting some pricing pressure to come after the
finance ministry released an ambitious supply schedule for May.
[ID:nL1207214]. Polish bonds were stable.
----------------------MARKET SNAPSHOT-------------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2009 
Czech crown      <EURCZK=>  27.303  27.362   +0.22%    -2.01%
Polish zloty     <EURPLN=>   4.65    4.643   -0.15%   -11.51%
Hungarian forint <EURHUF=> 308.1   306.83    -0.41%   -14.46%
Croatian kuna    <EURHRK=>   7.464   7.47    +0.08%    -1.33%
Romanian leu     <EURRON=>   4.238   4.235   -0.07%    -5.28%
Serbian dinar    <EURRSD=>  94.62   94.677   +0.06%    -5.43%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond   CZ2YT=RR   +4 basis points to  201bps over bmk*
4-yr T-bond   CZ4YT=RR   +1 basis points to  +284bps over bmk*
8-yr T-bond   CZ8YT=RR   +13 basis points to  +343bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond   PL2YT=RR   +7 basis points to  +440bps over bmk*
5-yr T-bond   PL5YT=RR   +6 basis points to  +381bps over bmk*
10-yr T-bond PL10YT=RR   +1 basis points to  +329bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond   HU3YT=RR  -16 basis points to  +1105bps over bmk*
5-yr T-bond   HU5YT=RR    -9 basis points to  +1051bps over bmk*
10-yr T-bond   HU10YT=RR  -20 basis points to  +906bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1152 CET.
Currency percent change calculated from the daily domestic 
close at 1600 GMT.
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 (Reporting by Reuters bureaus, writing by Marius Zaharia,
editing by Andy Bruce)