* Poland to raise rates first, followed by Hungary
* Polish rate hike seen later than thought before
* Currencies undeterred by tightening in China
(Adds bonds, quotes)
By Robert Mueller
PRAGUE, Nov 19 (Reuters) - A weaker dollar gave a slight boost to emerging Europe currencies on Friday, while the focus turned to central bank meetings as Polish policymakers suggested there may not be backing for an expected early rate rise.
Emerging European assets were again held back by uncertainty over a rescue plan for Ireland, whose debt and deficit problems have threatened to spill over into other indebted euro zone periphery countries. [
]Currencies in the region paid virtually no attention to the news that China had raised bank reserve requirements by 50 basis points for the second time in two weeks, stepping up its battle against potential inflation.[
]The forint <EURHUF=> rose 0.4 percent to lead gains, while the zloty <EURPLN=> was flat ahead of industrial output figures due later in the day, one of the last data releases before the central bank starts a two-day rate-setting meeting next week.
The market has scaled back bets that the 10-strong Polish Monetary Policy Council will kick off a tightening cycle this month after comments from policymakers suggested there may not be a majority to back a rate increase.
Analysts expect Poland to be the first to begin undoing two years of loosening interest rates in central Europe to fight off economic recession, with Hungary seen as second in line.
"If the output is clearly above the consensus, it will affect the market," said Marek Kaczor, fixed income dealer at PKO BP. "Because the council is split over the decision on rates, every macro figure is important now."
HUNGARIAN INFLATION
A Hungarian central banker told Reuters late on Thursday that its new inflation report, due out this month, would provide rate-setters with key clues about outlook changes, and said they will act if the inflation target is threatened. [
]Wage growth picked up in Hungary in September, but not by enough to influence monetary policy, analysts said. Markets will be watching the central bank's assessment of new government taxes and tax cuts, which it has already said look inflationary.
Yields on Hungarian bonds rose to 10-week highs earlier this week and have stayed close to those levels as the market remains vulnerable to news about the European Union debt crisis.
The government sold 68.5 billion forints worth of bonds at auctions on Thursday, well above the 45 billion forint plan, with strong demand on the short end of the curve but disappointing bids for the 10-year paper. [
]The Czech crown <EURCZK=> and Romanian leu <EURRON=> were flat on the day.
"It looks like some relief is coming into the region as the dollar is back on the weak foot," a dealer in Prague said. "Euro/dollar has been reversing up in last few sessions and is set to see higher levels again. All this is helping regional currencies to strengthen a bit."
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today in 2010 Czech crown <EURCZK=> 24.609 24.613 +0.02% +6.94% Polish zloty <EURPLN=> 3.939 3.939 0% +4.19% Hungarian forint <EURHUF=> 273.85 275.03 +0.43% -1.28% Croatian kuna <EURHRK=> 7.39 7.394 +0.05% -1.09% Romanian leu <EURRON=> 4.296 4.297 +0.02% -1.36% Serbian dinar <EURRSD=> 106.62 106.85 +0.22% -10.07% Yield Spreads Czech treasury bonds <0#CZBMK=> 2-yr T-bond CZ2YT=RR -1 basis points to +66bps over bmk* 7-yr T-bond CZ7YT=RR -3 basis points to +64bps over bmk* 10-yr T-bond CZ9YT=RR -3 basis points to +90bps over bmk* Hungarian treasury bonds <0#HUBMK=> 3-yr T-bond HU3YT=RR -3 basis points to +572bps over bmk* 5-yr T-bond HU5YT=RR +1 basis points to +535bps over bmk* 10-yr T-bond HU10YT=RR +4 basis points to +464bps over bmk* *Benchmark is German bond equivalent. All data taken from Reuters at 1221 CET. Currency percent change calculated from the daily domestic close at 1700 GMT.
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