CEE MARKETS 2-Zloty retreats from year peak, lifts crown

                                
 * FX hit multi-month highs on risk appetite
                                
 * Zloty retreat from 12-month high lifts crown
                                
 * Polish bonds give back gains, Hungary auction eyed
                                
 
                                
 (Updates prices, adds bonds, Hungary auction)
                                
 By Jason Hovet
                                
 PRAGUE, Jan 14 (Reuters) - Poland's zloty retreated slightly
from a one-year high hit in early trade on Thursday as investors
took profit and unwound regional cross trades, lifting the Czech
crown to a one-month peak.
                                
 The zloty, still off 20 percent from 2008 peaks, has been
favoured by investors at the start of the year, and analysts
said demand for local debt and stocks could underpin an attack
on the key 4 per euro level as global appetite for risk extends
a rally.
                                
 Hungary's forint and Romania's leu have also hit multi-month
highs this week, but were steady on Thursday. [ID:nLDE60C0KB]
                                
 The zloty <EURPLN=> bid a touch down on the day at 4.061 to
the euro by 1103 GMT, off the strongest level since a year ago
of 4.035, seen early in the session. [ID:nWAR011312]
                                
 The reversal squeezed long zloty/short crown trades, pushing
the Czech unit up 0.8 percent to bid at 25.98 to the euro. A
Reuters FX poll forecast the unit at 25.7 per euro by March.
                                
 "There has been some unwinding of zloty/crown positions," a
Prague-based dealer said. "It's a position squeeze... it hasn't
changed the overall direction."
                                
 Backed by the lowest interest rates in central Europe, the
crown has been used as a funding currency for higher-yielding
peers like the zloty, which is expected to outperform due to its
stronger economic recovery. [ID:nGEE5B229H]
                                
 Currencies overall have been lifted to start the year by an
improved economic outlook for central Europe, along with a
weaker dollar pushing investors to buy riskier emerging assets.
                                
 
                                
 BOND DEMAND
                                
 Analysts said the rally still had some steam as the dollar
stays weak. Central European stocks tracked western peers
higher, giving currencies further support after record demand
for a Polish 2-year bond auction on Wednesday boosted the zloty.
[ID:nLDE60C219]
                                
 The auction followed Poland's sale of 3 billion euros worth
of 15-year bonds this week, taking advantage of tightening yield
spreads with western peers.
                                
 A Hungarian auction on Thursday saw demand at several times
what it sold. [ID:nEAP000710]
                                
 Polish bonds, though, gave up some gains on profit-taking on
Thursday, and dealers said longer-dated bonds could remain under
pressure before the next debt tender next week.
                                
 "Yesterday's auction of Polish bonds demonstrated in an
impressive manner that Eastern Europe has once again become a
popular target for portfolio investments," Commerzbank said. 
                                
 "Even if the event only confirms the development in EUR-PLN
over the past few weeks; the market considered it as
confirmation of the PLN-positive view thus leading to further
zloty strength."
                                
 Upcoming elections in Hungary and the Czech Republic may cap
gains, though, while some countries are undermined by concerns
over high financing needs and shakier fundamentals.
                                
 Czech industrial final data for November on Thursday
highlighted the slow recovery ahead for central European
economies, with output falling 0.1 percent year-on-year and
contradicting a preliminary estimate that had shown the first
growth in more than a year. [ID:nLDE60D06Q]
--------------------------MARKET SNAPSHOT--------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2010 
Czech crown      <EURCZK=>   25.972   26.173  +0.77%   +1.33%
Polish zloty     <EURPLN=>    4.061    4.055  -0.15%   +1.06%
Hungarian forint <EURHUF=>  266.7    267.15   +0.17%   +1.37%
Croatian kuna    <EURHRK=>    7.286    7.286   0%      +0.32%
Romanian leu     <EURRON=>    4.128    4.121  -0.17%   +2.65%
Serbian dinar    <EURRSD=>   97.14    97.25   +0.11%   -1.3%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond   CZ3YT=RR    -2 basis points to  68bps over bmk*
7-yr T-bond   CZ7YT=RR   +14 basis points to  +121bps over bmk*
10-yr T-bond   CZ10YT=RR   +4 basis points to  +108bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond   PL2YT=RR   +3 basis points to  +384bps over bmk*
5-yr T-bond   PL5YT=RR   +4 basis points to  +325bps over bmk*
10-yr T-bond PL10YT=RR   +3 basis points to  +281bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1204 CET.
Currency percent change calculated from the daily domestic 
close at 1700 GMT.

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 (Reporting by Reuters bureaus, writing by Jason Hovet; editing
by Patrick Graham)