CEE MARKETS 2-Hungary bonds fall, zloty steady; rate hikes eyed

                                
 * Hungary bonds weaken after inflation data higher
                                
 * Zloty steadies; markets still see Polish rate hike soon
                                
 * Leu unfazed by cbank comments
                                
 
 (Recasts with bonds, updates prices)
                                
 By Jason Hovet
                                
 PRAGUE, Jan 14 (Reuters) - Hungarian bond yields rose on
Friday after forecast-beating inflation data raised expectations
the central bank would keep raising interest rates, while the
zloty stabilised after profit taking.
                                
 Hungary became the first country in central Europe to start
tightening policy in November, bringing its base rate to 5.75
percent after two quarter point hikes. It meets again on Jan.
24.
                                
 Data on Friday showed Hungary's headline inflation rate
accelerated to 4.7 percent in December. Analysts said the data
would boost rate hike expectations, but that risk appetite would
also play a factor in the bank's decision. [ID:nLDE70D0CQ]
"The jump (in headline CPI) to 4.7 percent will boost rate
hike expectations," said Gergely Suppan, analyst with
Takarekbank.
                                
 "The reasons that supported the rate increase in December
are still there. So it would be a surprise if the central bank
decided to hold interest rates this month."
                                
 Hungarian bond yields rose by up to 13 basis points on
long-dated paper, continuing the trend of a steepening of the
yield curve seen in the first weeks of 2011.
                                
 Analysts expect Poland will follow Hungary and start
tightening monetary policy next week, a view that was kept
intact on Thursday by a rise in December inflation data.
[ID:nLDE70B0Q2] [ID:nLDE70C1N4]
                                
 "With Governor Belka now likely having joined (the hawkish)
camp a first hike is likely at next Wednesday's meeting," SEB
said.
                                
 "This is fully priced in the market implying that the risk
lies in an on-hold decision, which would trigger profit taking
in the zloty after recent gains."

                                
 DOLLAR WEIGHS
                                
 The zloty has gained 2 percent this year but was trading off
a nine-month high hit earlier in the week after profit taking on
Thursday. On Friday, it bid <EURPLN=> at 3.88 to the euro by
0900 GMT, down 0.3 percent on the day.
                                
 The Hungarian forint, which gained on Thursday thanks to
profit taking on the zloty/forint cross, lost 0.5 percent to
hover above the 275 per euro resistance level. [ID:nLDE70C0AF]
                                
 "Dollar buying drives the forint's weakening (against the
euro), the dollar has become cheap and some market players are
buying it," a Budapest FX dealer said.
                                
 The Czech crown <EURCZK=> was steady, while the Romanian leu
<EURRON=> dipped 0.1 percent, unaffected by comments by central
bank Governor Mugur Isarescu's comments about possible rate
cuts.
                                
 Isarescu said in an interview broadcast late on Thursday
that the central bank would cut interest rates from 6.25 percent
when projected levels of inflation start falling.
[ID:nLDE70C2E9]
                                
 Annual inflation rose sharply to hit 8 percent in December
after a 5 percentage point value-added tax hike in July, which
interrupted a 400 basis point rate easing cycle that the central
bank started in August 2008. [ID:nLDE70C2CR]
                                
 Markets expect Romania to cut rates this year to help it out
of recession, while Hungary, Poland and possibly the Czech
Republic are expected to continue or begin rate hikes.
                                
 
--------------------------MARKET SNAPSHOT--------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2011 
Czech crown      <EURCZK=>   24.418   24.422  +0.02%   +2.38%
Polish zloty     <EURPLN=>    3.881    3.871  -0.26%   +1.98%
Hungarian forint <EURHUF=>  276.17   274.85   -0.48%   +0.66%
Croatian kuna    <EURHRK=>    7.395    7.397  +0.03%   -0.2%
Romanian leu     <EURRON=>    4.264    4.26   -0.09%   -0.73%
Serbian dinar    <EURRSD=>  105.06   104.78   -0.27%   +0.83%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond   CZ2YT=RR    -3 basis points to  62bps over bmk*
7-yr T-bond   CZ7YT=RR    -2 basis points to  +85bps over bmk*
10-yr T-bond   CZ9YT=RR    -2 basis points to  +92bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond   PL2YT=RR   +1 basis points to  +389bps over bmk*
5-yr T-bond   PL5YT=RR   +8 basis points to  +358bps over bmk*
10-yr T-bond PL10YT=RR   +7 basis points to  +336bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond   HU3YT=RR   +2 basis points to  +618bps over bmk*
5-yr T-bond   HU5YT=RR   +10 basis points to  +558bps over bmk*
10-yr T-bond   HU10YT=RR +12 basis points to  +489bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1208 CET.
Currency percent change calculated from the daily domestic 
close at 1700 GMT.
For related news and prices, click on the codes in brackets: All
emerging market news [EMRG]
Spot FX rates
Eastern Europe spot FX <EEFX=>    Middle East spot FX <MEFX=>
Asia spot FX <ASIAFX=>       Latin America spot FX <LATAMFX=>
Other news and reports  
World central bank news [CEN]  Economic Data Guide <ECONGUIDE> 
Official rates [GLOBAL/INT]  Emerging Diary [EMRG/DIARY] 
Top events [M/DIARY]  Diaries [DIARY] Diaries Index [IND/DIARY] 
 (Reporting by Reuters bureaus, writing by Jason Hovet; Editing
by John Stonestreet and Susan Fenton)