CEE MARKETS 3-FX recover ground from two days of falls

                                
 * FX, stocks recover on market calming, euro
                                
 * Czech politicians look for solution, assures markets
                                
 
 (Updates throughout)
                                
 By Jason Hovet and Dagmara Leszkowicz
                                
 PRAGUE/WARSAW, Sept 3 (Reuters) - The Polish zloty led gains
in central Europe as markets got back to firmer ground on
Thursday on the back of a stronger euro and emerging equity
markets, while the Czech crown shook off political worries.
                                
 Central European bourses were all in the black, tracking
gains in other emerging markets and traded around 1-2.5 percent
up after losses of more than 3 percent in the previous session.
                                
 "The region is strengthening, stocks are up so we're again
in positive territory," said one Warsaw-based dealer. "But the
last day showed what the market had forgotten already - one
nervous trading day can reverse the trend."
                                
 The crown <EURCZK=> edged up 0.4 percent to 25.60 to the
euro, while the Polish zloty <EURPLN=> led gains with a 1.0
percent rise to bid at 4.118 to the euro by 1245 GMT.
                                
 As expected, the European Central Bank kept its main
refinancing rate unchanged at a record low of 1 percent on
Thursday, with the euro/dollar, central Europe's main reference
rate, holding at session highs afterwards.
In the Czech Republic, markets got some assurance after
leaders agreed on Wednesday to push for an early election by
preparing constitutional changes.
                                
 The move could circumvent a court injunction this week that
will likely postpone early polls set for Oct. 9-10 as judges
debate the legality of the early vote. [ID:nL257978]
                                
 Czech bonds were stronger along the short end of the curve,
with 2-year <CZ2YT=RR> yield dropping around 17 basis points to
quote at 2.475/2.006 percent, while money market rates eased.
                                
 Komercni Banka recommended selling the Czech 3x6 forward
rate agreements with a target of 1.75 percent after rates jumped
around 20 basis points in the past two weeks to 2 percent as
markets started pricing in rate hikes.
                                
 
                                
 SLOW PATH
                                
 Polish and Hungarian bonds were also quiet on Thursday, with
yields steady along the curve.
                                
 Markets have begun questioning a summer rally that pushed
regional bourses to double-digit gains and the zloty up 7
percent, although lower liquidity has exaggerated price moves.
                                
 An improving economic outlook in the euro zone has lifted
central Europe's recovery prospects and built expectations that
Poland and the Czech Republic, where rates are at record lows,
have ended monetary easing.
                                
 Polish central banker Jan Czekaj told Reuters on Thursday
the firming zloty was a risk for the economy. [ID:nL3358788]
                                
 Romania and Hungary, with the highest rates in the European
Union, are expected to cut them further as analysts warn the
return to economic growth will be slow.
                                
 Hungary's economy may shrink less than an official
government projection for 6.7 percent this year, Prime Minister
Gordon Bajnai said on Thursday.
                                
 The forint <EURRON=> was up 0.5 percent on the day.
Romania's leu <EURRON=> was steady at 4.24 to the euro.
                                
 A Reuters poll on Wednesday showed currencies steady over
the next three months, with only the zloty -- and its stronger
economy -- the outperformer. <CEEFXPOLL02> [ID:nL2538084]
                                
 
--------------------------MARKET SNAPSHOT--------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2009 
Czech crown      <EURCZK=>   25.6     25.707  +0.42%   +4.5%
Polish zloty     <EURPLN=>    4.118    4.16   +1.02%   -0.07%
Hungarian forint <EURHUF=>  273.95   275.35   +0.51%   -3.8%
Croatian kuna    <EURHRK=>    7.344    7.341  -0.04%   +0.29%
Romanian leu     <EURRON=>    4.241    4.239  -0.05%   -5.34%
Serbian dinar    <EURRSD=>   93.327   92.98   -0.37%   -4.12%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond   CZ2YT=RR    -16 basis points to  130bps over bmk*
4-yr T-bond   CZ4YT=RR   +1 basis points to  +154bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond   PL2YT=RR   +1 basis points to  +395bps over bmk*
5-yr T-bond   PL5YT=RR    -1 basis points to  +326bps over bmk*
10-yr T-bond PL10YT=RR    -3 basis points to  +285bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond   HU3YT=RR    0 basis points to  +654bps over bmk*
5-yr T-bond   HU5YT=RR    -3 basis points to  +596bps over bmk*
10-yr T-bond   HU10YT=RR  -11 basis points to  +508bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1446 CET.
Currency percent change calculated from the daily domestic 
close at 1600 GMT.

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(Reporting by Reuters bureaus, writing by Jason Hovet and
Dagmara Leszkowicz, editing by Victoria Main)