CEE MARKETS 2-Zloty up, Polish bonds down on c.bank gov comments

                                
 * Zloty up on governor's rate comments
                                
 * Polish bonds down, 2-year papers hit most
                                
 * Romania expected to leave rates flat on Wednesday
                                
 
                                
 (Adds fixed income, detail)
                                
 By Dagmara Leszkowicz
                                
 WARSAW, Jan 5 (Reuters) - The Polish zloty firmed to 
eight-week highs on Wednesday after central bank governor Marek
Belka said for the first time since taking up his post last
summer it was time for Warsaw to begin monetary tightening.
                                
 Belka told Reuters in an exclusive interview that it was
time for Polish interest rates to move gradually higher to help
strengthen the zloty and cap inflation expectations.
[ID:nLDE7031MB]
                                
 "The time for observing the situation in monetary policy is
ending. I definitely believe that rates should be raised
pre-emptively, not just in case," he said.
                                
 Poland's 10-strong Monetary Policy Council has kept the key
interest rate at a record low of 3.5 percent over the last 18
months and analysts expect the bank to raise borrowing costs
soon, although they are split over the exact timing of a hike.
                                
 By 0955 GMT the zloty <EURPLN=> was 0.7 percent stronger at
3.90, a touch off an earlier high of 3.885, with traders
ascribing the move to Belka's comments. 
                                
 By contrast, Polish bonds weakened on Wednesday, with yields
up some 11 basis points at the short-end of the curve on the
expectations of quick interest rate increases.
                                
 "Belka strengthened the zloty," said one Warsaw-based
dealer. "I guess it may move in a band of around 3.89-3.92
today."
                                
 Belka voted against a proposed 50 basis point rate hike in
August -- the last month for which individual voting records
have been published -- and is widely regarded as a moderate
member of Poland's 10-strong rate-setting committee.
                                
 Analysts said his comments may mean interest rate rises will
be delivered sooner than had been expected.
                                
 Polish 3x6 forward rate agreements <PLNFRA> -- which show
where markets see rates in future -- jumped more than 10 basis
points on Wednesday and now are pricing in a rise of 54 basis
points in the next three months.
                                
 The Czech crown <EURCZK=> had added some 0.2 percent by 0955
GMT, while Hungary's forint <EURHUF=> eased some 0.3 percent.
                                
 
                                
 ROMANIA'S RATES SEEN FLAT
                                
 Elsewhere, at a meeting on Wednesday Romania's central bank
is expected to leave interest rates unchanged at 6.25 percent,
a move that should help the country's economy to rebound after a
deep recession.
                                
 A Romanian newspaper reported on Wednesday that the
country's budget deficit stood at 6.6 percent of gross domestic
product last year, slightly less than its 6.8 percent IMF-agreed
target. [ID:nLDE70408A]
                                
 Under a 20 billion euro bailout led by the International
Monetary Fund, Romania implemented drastic spending cuts to rein
in a bulging fiscal shortfall last year and must cut the deficit
further to 4.4 percent of GDP in 2011.
                                
 Romania's leu <EURRON=> was 0.1 percent stronger on
Wednesday morning, with dealers saying a possible decision to
leave rates unchanged had been already priced in.
--------------------------MARKET SNAPSHOT--------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2011 
Czech crown      <EURCZK=>  24.827  24.871   +0.18%   +0.7%
Polish zloty     <EURPLN=>   3.91    3.937   +0.69%   +1.23%
Hungarian forint <EURHUF=> 276.73  275.96    -0.28%   +0.45%
Croatian kuna    <EURHRK=>   7.386   7.362   -0.32%   -0.08%
Romanian leu     <EURRON=>   4.267   4.27    +0.07%   -0.8%
Serbian dinar    <EURRSD=> 106.4   106.46    +0.06%   -0.44%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond   CZ2YT=RR    -11 basis points to  94bps over bmk*
7-yr T-bond   CZ7YT=RR    0 basis points to  +92bps over bmk*
10-yr T-bond   CZ9YT=RR   +4 basis points to  +106bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond   PL2YT=RR   +10 basis points to  +416bps over bmk*
5-yr T-bond   PL5YT=RR   +8 basis points to  +386bps over bmk*
10-yr T-bond PL10YT=RR   +4 basis points to  +328bps over bmk*
The P
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond   HU3YT=RR   +2 basis points to  +660bps over bmk*
5-yr T-bond   HU5YT=RR   +6 basis points to  +595bps over bmk*
10-yr T-bond   HU10YT=RR +6 basis points to  +497bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1055 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,
Editing by Catherine Evans)