CEE MARKETS 2-Forint recovers, outperforms other CEE currencies

                                
 * HUF stronger, shrugs off Moody's downgrade of banks
                                
 * Reaction to Romanian budget approval muted
                                
 * Impact of euro zone woes on CEE currencies eases 
                                
 
 (Adds fixed income)
                                
 WARSAW, Dec 7 (Reuters) - Emerging European currencies
gained on Tuesday with the Hungarian forint leading the way as
investors shrugged off a Moody's downgrade of the country's
banks and awaited a parliamentary vote on its 2011 budget
targets.
                                
 The forint <EURHUF=> picked up from a 1 percent slide on
Monday after Moody's cut Hungary's credit rating to just above
junk grade, citing concerns about its public finances.
                                
 Hungarian lawmakers will vote on key targets in the 2011
budget later on Tuesday. The Economy Ministry's state secretary
told parliament that targets for next year would ensure that the
deficit would come in below the European Union limit of 3
percent of GDP. [ID:nBUD005628]
                                
 "It seems that we're not the story after all," one
Budapest-based dealer said. 
                                
 "Investors ... returned to business. We'll watch the EUR/USD
cross, as on all quiet days, and probably strengthen to about
278 to the euro."
                                
 Moody's also cut its ratings on Hungary's banks on Tuesday
[ID:nWLA0084], but the move had little impact on the currency
and on the stock market, as the country's largest bank OTP
<OTPB.BU> already cut its losses and gained some 1 percent.
                                
 By 1004 GMT the forint was 0.8 percent stronger versus the
euro. The Polish zloty <EURPLN=> and Romania's leu <EURRON=>
each rose 0.21 percent, while the Czech crown <EURCZK=> was
flat.
                                
 Hungary's bonds were also stronger, with yields down 7-11
basis points across the curve, and dealers said they expected
trade on the bond market to remain relatively stable towards the
end of the year though they could deteriorate in 2011.
                                
 "The euro firming against the dollar helped the bonds," one
fixed-income trader said. "I think investors have more or less
finished what they wanted to do this year. What is left for the
rest of the year is a (possible) downgrade by Fitch."
                                
 "If the government does not announce structural reforms,
there will be downgrades (to junk status) in March and the
market could explode."
                                
 
                                
 EURO ZONE
                                
 The region's currencies have been hit recently by worries
over possible contagion in the euro zone crisis, but analysts
said this effect seems to have abated for now.
                                
 "Of course it is not the euro zone crisis itself that is
fading, but it looks like its impact on the region seems to be
weaker now," said Ulrich Leuchtmann, analyst at Commerzbank in
Frankfurt.
                                
 In Romania, the coalition government on Monday approved a
cost-cutting budget for next year, a move that should allow
Bucharest to keep its IMF-led aid package on track.
                                
 The government took additional measures to boost its
revenues by deciding to collect health insurance taxes from most
pensioners and to cut spending by halving maternity leave to a
year.
                                
 Dealers said market reaction to the budget approval was
subdued as it still needs to clear parliament, where the
government holds a fragile majority and budget talks are usually
extended.
--------------------------MARKET SNAPSHOT--------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2010 
Czech crown      <EURCZK=>  25.006   25.005      0%   +5.25%
Polish zloty     <EURPLN=>   4.005    4.014  +0.22%   +2.47%
Hungarian forint <EURHUF=> 277.68   279.9    +0.8%    -2.64%
Croatian kuna    <EURHRK=>   7.382    7.372  -0.14%   -0.99%
Romanian leu     <EURRON=>   4,301    4.308  +0.16%   -1.48%
Serbian dinar    <EURRSD=> 107.2    107.1    -0.09%  -10.56%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond   CZ2YT=RR   +3 basis points to  103bps over bmk*
7-yr T-bond   CZ7YT=RR    -5 basis points to  +91bps over bmk*
10-yr T-bond   CZ9YT=RR    -3 basis points to  +93bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond   PL2YT=RR    -1 basis points to  +382bps over bmk*
5-yr T-bond   PL5YT=RR    -3 basis points to  +358bps over bmk*
10-yr T-bond PL10YT=RR    -3 basis points to  +304bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond   HU3YT=RR    -10 basis points to  +677bps over bmk*
5-yr T-bond   HU5YT=RR    -15 basis points to  +608bps over bmk*
10-yr T-bond   HU10YT=RR  -11 basis points to  +511bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1104 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 Hugh Lawson)