CEE MARKETS 2-Stock gains buoy FX, Polish bonds gain

                                
 * Stronger stocks support FX, but pressure on euro weigh
                                
 * Czech markets gear up for weekend election
                                
 * Floods in Poland not harming zloty
                                
 
                                
(Adds bonds, updates prices)
                                
 PRAGUE, May 24 (Reuters) - Rising stocks buoyed central
European currencies on Monday, but dealers said markets would
stay volatile this week with persisting worry over the euro
zone's fiscal woes.
                                
 The euro came under more pressure on Monday after the
takeover of a Spanish savings bank by the central bank unnerved
investors and put a drag on central Europe's currencies.
                                
 But central European currencies held on to gains earned on
Friday when Germany's approval of its share of a $1 trillion
safety net for debt-laden euro zone states lifted risk appetite.
                                
 In the Czech Republic, markets were also looking to a
Friday-Saturday election whose winner is far from certain and
could mean weeks or months of protracted coalition talks.
                                
 "Stocks are doing well... but for the crown to get below
25.5 (per euro) seems impossible, especially before the
election," a Prague dealer said.
                                
 The overwhelming majority of analysts that Reuters polled
last week said a weak government with no strong majority to kick
off reforms and cut the budget was one of the main risks from
the Czech vote. [ID:nLDE64I1AP] [ID:nLDE64D1S2]
                                
 Czech politics are fragmented in contrast to neighbours like
Hungary, where centre-right Fidesz won polls in April with a
two-thirds majority, or Poland, where the ruling party's
candidate will likely win a June presidential election.
                                
 On Monday, the crown <EURCZK=> added 0.1 percent to 25.618
to the euro and the Polish zloty <EURPLN=> dipped 0.1 percent to
4.102 per euro by 0939 GMT.
                                
 Prague stocks <.PX> gained almost 1.6 percent and Warsaw
<.WIG20> added 0.2 percent, while Budapest and Bucharest were
closed for a holiday.
                                
 Hungary's forint <EURHUF=> dropped 0.3 percent and Romania's
leu <EURRON=> rose 0.1 percent.
                                
 
                                
 STILL UNCERTAIN OUTLOOK
                                
 Central Europe's economic fortunes are closely tied to the
euro zone, where investors fear tough fiscal measures mainly in
southern members will dent the bloc's fragile economic recovery.
                                
 Analysts in Poland, the only EU member to stay out of
recession last year, said the zloty could attack the 4.0 per
euro level if sentiment on the market stabilised. Heavy flooding
in the country was not likely to impact the currency despite the
cost to the state, they added. [ID:nWSF009115]
                                
 "We don't expect the crisis to have a negative effect on the
zloty as long as the government doesn't increase the deficit. We
see the chances of such a move as less than 50 percent," Bank
Handlowy wrote in a morning note.
Polish bonds firmed with stock gains on Monday, with yields
falling 4-6 percent. 
                                
 The zloty has swung from a high of 3.8225 per euro in April
to a low of 4.24 earlier this month. The head of state-owned BGK
said last week the bank is increasingly active on the FX and
money markets, commenting after market sources told Reuters the
bank sold euros to bolster the falling zloty. [ID:nLDE64J0EI]
                                
 
 --------------------------MARKET SNAPSHOT--------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2010 
Czech crown      <EURCZK=>   25.618   25.643  +0.1%    +2.73%
Polish zloty     <EURPLN=>    4.102    4.098  -0.1%    +0.05%
Hungarian forint <EURHUF=>  278.99   278.07   -0.33%   -3.1%
Croatian kuna    <EURHRK=>    7.269    7.27   +0.01%   +0.55%
Romanian leu     <EURRON=>    4.18     4.182  +0.05%   +1.37%
Serbian dinar    <EURRSD=>  102.46   101.82   -0.62%   -6.42%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond   CZ2YT=RR   +2 basis points to  119bps over bmk*
7-yr T-bond   CZ7YT=RR   +6 basis points to  +135bps over bmk*
10-yr T-bond   CZ9YT=RR   +10 basis points to  +131bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond   PL2YT=RR    -7 basis points to  +400bps over bmk*
5-yr T-bond   PL5YT=RR    -6 basis points to  +374bps over bmk*
10-yr T-bond PL10YT=RR    -2 basis points to  +309bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1138 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; editing
by Jason Webb/Toby Chopra)