CEE MARKETS 3-Currencies down on concerns over Latvia

                                
 * Bill tender in Latvia failed, affecting whole region
                                
 * Uncertainty over lat; Latvian PM rules out devaluation
                                
 * Czech, Polish bonds sell well, outlook positive
                                

  (Updates throughout)
                                
 By Marton Dunai and Dagmara Leszkowicz
                                
 BUDAPEST/WARSAW, June 3 (Reuters) - Hungary's forint fell
sharply against the euro on Wednesday when central European
currencies came under pressure from growing speculation that
Latvia may devalue its currency.
                                
 The Baltic state failed to sell any of its offered debt on
Wednesday, and markets there remained frozen due to concerns
about the Latvian currency. [ID:nL351431]
                                
 Earlier in Latvia, Prime Minister Valdis Dombrovskis ruled
out a currency devaluation, which some analysts feared could
have triggered a regional selloff. [ID:nL3112939]
                                
 But markets' suspicions have grown, knocking assets across
Central Europe and the Nordic region.
                                
 "It is nothing but Latvia now," one Warsaw-based dealer
said. "It shows the current economic situation is still not
under control."
                                
 A Latvian devaluation would hit Swedish banks who have heavy
exposure to the country by driving up non-performing loans, and
could also raise fears regarding other recipients of IMF help 
such as Ukraine or Hungary.
                                
 At 1405 GMT the forint <EURHUF=> was 2.4 percent weaker to
the common currency.
                                
 "There was massive short covering," a Budapest dealer said.
"The market is incredibly illiquid, a big move (in the forint)
could be made with a (bigger) order and then it was short
covering all the way." 
                                
 The Polish zloty <EURPLN=> was more than 1 percent down
against the euro. Other currencies also fell, with Romania's leu
<EURRON=> and the Czech crown <EURCZK=> down 0.7 percent and 0.3
percent respectively.
                                
 The dollar's rebound against the euro <EUR=>, which often
indicates increased risk aversion and decreased appetite for
emerging market assets, put pressure on the region's currencies.
                                
 "We are tracking the waves of the international market,"
another Budapest-based dealer said. "The dollar firmed...
bourses in London, Germany and the Dow futures are in negative
territory."
                                
 
                                
 BONDS SELL WELL
                                
 Despite the situation in Latvia, Poland as well as Czech
Republic managed to sell all bonds offered on Wednesday,
although Czech yields rose as concerns over rising Czech
government debt took a toll on pricing. [ID:nL3458200]
                                
 The Czech Finance Ministry sold 8.19 billion crowns ($437
million) worth of 5.00 percent coupon government bonds due in
2019. <CZ1002471=>
                                
 In Poland the ministry sold a total of 4.36 billion zlotys
in two-year OK0112 bonds due in 2012 and 1.12 billion zlotys in
five-year PS0414 bonds due in 2014. Investor demand reached 8.3
billion zlotys.
                                
 Dealers said the country's debt market outlook looked
positive as Poland has managed to sell all the offered issuance 
since the beginning of the year. [ID:nL3613514]
                                
 In Hungary Prime Minister Gordon Bajnai said his government
was considering further budget cuts to contain the deficit in
the economic downturn. [ID:nL3362459]
----------------------MARKET SNAPSHOT-------------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2009 
Czech crown      <EURCZK=>  26.859    26.781  -0.29%    -0.39%
Polish zloty     <EURPLN=>   4.535     4.488  -1.04%    -9.26%
Hungarian forint <EURHUF=> 288.2     281.3    -2.39%    -8.55%
Croatian kuna    <EURHRK=>   7.353     7.333  -0.27%    +0.16%
Romanian leu     <EURRON=>   4.215     4.185  -0.71%    -4.76%
Serbian dinar    <EURRSD=>  93.886    93.93   +0.05%    -4.69%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond   CZ2YT=RR   +2 basis points to  154bps over bmk*
4-yr T-bond   CZ4YT=RR   +13 basis points to  +166bps over bmk*
8-yr T-bond   CZ8YT=RR   +14 basis points to  +279bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond   PL2YT=RR    -3 basis points to  +404bps over bmk*
5-yr T-bond   PL5YT=RR   +5 basis points to  +320bps over bmk*
10-yr T-bond PL10YT=RR   +5 basis points to  +271bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond   HU3YT=RR    -21 basis points to  +861bps over bmk*
5-yr T-bond   HU5YT=RR    -53 basis points to  +776bps over bmk*
10-yr T-bond   HU10YT=RR  -41 basis points to  +672bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1505 CET.
Currency percent change calculated from the daily domestic 
close at 1600 GMT.
                                
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 (Reporting by Reuters bureaus, Writing by Marton Dunai and
Dagmara Leszkowicz; Editing by Ruth Pitchford)