CEE MARKETS 3-Forint up on rate rise expectation, bonds volatile

                                
 * Gains in euro, global stocks lift CEE assets
                                
 * HUF up ahead of cbank meeting
                                
 * Analysts in Hungary expect cbank to hike, dealers split
                                
 
 (Updates throughout)
                                
 By Marton Dunai and Dagmara Leszkowicz
                                
 BUDAPEST/WARSAW, Jan 21 (Reuters) - The Hungarian forint
rose on Friday on expectations for a rate rise next week but
there was volatility in the bond market as some traders saw a
chance the central bank could keep rates on hold.
                                
 Other currencies in the region were also in positive
territory, lifted by gains in global equities as well as a
stronger euro.
                                
 Hungary's central bank had been expected to raise borrowing
costs by another 25 basis points on Monday, adding to two rate
increases at the end of last year when it became the first
central bank in central Europe to tighten policy.
<HUREPO1>[ID:nLDE70J004]
                                
 But while that expectation continued to support the forint,
dealers in the bond market said a rate rise was not a foregone
conclusion.
                                
 "An interest rate hike on Monday is a popular idea among
analysts, but the market is split to the heart over that," a
Budapest-based fixed income trader said.
                                
 "Volatility is high in the bond market, even in intra-day
terms. There was a point today when yields were 5-6 basis points
above yesterday's levels, but now they may be already below
yesterday's level."
                                
  Dealers said another rise in Hungarian interest rates on
Monday would have no impact on the currency as it has been
priced in, while any firming until the rate meeting could be
limited.
                                
 By 1457 GMT the forint <EURHUF=> was 0.7 percent stronger,
trading at 274.13 to the euro.
                                
 Rising inflation pressure in the region has triggered the
start of monetary tightening with Poland following Hungary and
raising borrowing costs last Wednesday by a moderate 25 basis
points from an all-time low of 3.5 percent.
                                
 Hungary and Poland are expected to keep raising rates and
investors are also waiting for both governments to unveil
sustainable budget reforms to ensure their budget deficits do
not swell once one-off measures expire. [ID:nLDE70J1H3]
                                
 The Polish zloty <EURPLN=> also rebounded on Friday with a
0.65 percent rise. The Czech crown <EURCZK=> gained 0.3 percent
to 24.301, while the Romanian leu <EURRON=> firmed 0.1 percent
to 4.265.
                                
 While the forint was seen staying in the 273-277 range in
the short term, dealers said the crown could strengthen further.
                                
 "It is being driven by euro/dollar and we expect we could
look somewhere near (EUR/CZK) 24.00," said a dealer in Prague.
 --------------------------MARKET SNAPSHOT--------------------
 Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2011 
Czech crown      <EURCZK=>  24.301   24.374  +0.3%    +2.88%
Polish zloty     <EURPLN=>   3.872    3.897  +0.65%   +2.22%
Hungarian forint <EURHUF=> 274.13   275.95   +0.66%   +1.4%
Croatian kuna    <EURHRK=>   7.391    7.391      0%   -0.15%
Romanian leu     <EURRON=>   4.265    4.269  +0.09%   -0.75%
Serbian dinar    <EURRSD=> 104.42   104.82   +0.38%   +1.44%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond   CZ2YT=RR    -3 basis points to  49bps over bmk*
7-yr T-bond   CZ7YT=RR    -4 basis points to  +73bps over bmk*
10-yr T-bond   CZ9YT=RR    -1 basis points to  +82bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond   PL2YT=RR    -6 basis points to  +367bps over bmk*
5-yr T-bond   PL5YT=RR    -6 basis points to  +342bps over bmk*
10-yr T-bond PL10YT=RR    -7 basis points to  +312bps over bmk*
The P
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond   HU3YT=RR    -2 basis points to  +545bps over bmk*
5-yr T-bond   HU5YT=RR    -5 basis points to  +509bps over bmk*
10-yr T-bond   HU10YT=RR  -3 basis points to  +440bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1557 CET.
Currency percent change calculated from the daily domestic 
close at 1600 GMT.
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 (Reporting by Reuters bureaux, writing by Marton Dunai and
Sandor Peto; Editing by Susan Fenton)