CEE MARKETS 2-FX firms, forint steady before likely rate cut

                                
 * Forint slightly up ahead of rate decision
                                
 * Other FX stronger, Polish zloty leads gains
                                
 * External factors still weigh on the region
                                
 
                                
 (Adds fixed income, detail)
                                
 WARSAW, Jan 25 (Reuters) - Poland's zloty led gains on
Monday and Hungary's forint recovered early losses ahead of an
expected interest rate cut despite continuing concerns over
Greece's woes and U.S. President Barack Obama's bank proposals.
                                
 "We consider (a cut of) 25 basis points likely and the
market seems to be in agreement on that," a currency dealer said
of the Hungarian central bank decision, due at 1300 GMT.
                                
 Another 25 basis point reduction would bring Hungary's base
rate to 6 percent, a level last seen in September 2005.
                                
 Hungarian retail sales data, released earlier in the day,
confirmed that the crisis-marred  economy remains in a weak
state. Sales fell by an annual 7.8 percent in November after a
7.5 percent decline in the previous month.
                                
 However, some analysts said Hungary's central bank may call
a halt to its monetary easing campaign due to concerns about the
external value of the country's currency.
                                
 "Should the central bank therefore stop cutting rates this
would probably lead to EURHUF falling," analysts at Commerzbank
wrote in a note.
                                
 At 1013 GMT the forint <EURHUF> was 0.1 percent stronger to
the euro, reversing modest early losses, while Poland's zloty
<EURPLN=> had gained 0.7 percent against the common currency.
                                
 Other currencies were also stronger, with the Czech crown
<EURCZK=> and Romania's leu <EURRON=> both strengthening around
0.4 to 0.5 percent.
                                
 The Polish zloty has gained some 1.2 percent since the start
of the year and dealers say the unit still has room to rise
after being the worst hit currency in the region last year.
                                
 "The market widely expects Poland's zloty to gain, it's just
a matter of global sentiment when (the zloty) appreciation
starts," said Jakub Wiraszka, dealer at BRE bank in Warsaw.
                                
 The region's other currencies have also mostly firmed
against the common currency since the start of the year, though
analysts say external factors such as concerns over Greek debt
and U.S. President Barack Obama's bank proposals are hindering
upside potential.
                                
 "CEE-3 (Poland, Czech Republic and Hungary) is under
pressure due to global risk aversion and the tension in Greece.
We expect this squeeze to continue and believe these could be
good entry levels going forward," analysts at SEB wrote in a
note.
                                
 Bond markets were quiet, with Hungary's short-dated paper
yields slightly lower and the longer-end a bit stronger compared
to Friday's closing levels. Dealers said the market has already
priced in a 25 basis point interest rate cut in Hungary.
                                
 "We won't budge before the rate announcement, but to be
honest with you, I doubt we will move much even afterwards," a
dealer in Budapest said. "Don't expect any excitement."
--------------------------MARKET SNAPSHOT--------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2009 
Czech crown      <EURCZK=>  25.991   26.095  +0.4%     +1.26%
Polish zloty     <EURPLN=>   4.063    4.092  +0.71%    +1.01%
Hungarian forint <EURHUF=> 270.6    270.9    +0.11%    -0.09%
Croatian kuna    <EURHRK=>   7.291    7.291      0%    +0.25%
Romanian leu     <EURRON=>   4.13     4.15   +0.48%    +2.6%
Serbian dinar    <EURRSD=>  97.58    97.37   -0.22%    -1.74%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond   CZ3YT=RR    -3 basis points to  89bps over bmk*
7-yr T-bond   CZ7YT=RR    -8 basis points to  +134bps over bmk*
10-yr T-bond   CZ10YT=RR    -9 basis points to  +121bps over
bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond   PL2YT=RR    -3 basis points to  +386bps over bmk*
5-yr T-bond   PL5YT=RR    -3 basis points to  +329bps over bmk*
10-yr T-bond PL10YT=RR    -3 basis points to  +286bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond   HU3YT=RR    -2 basis points to  +541bps over bmk*
5-yr T-bond   HU5YT=RR    -3 basis points to  +503bps over bmk*
10-yr T-bond   HU10YT=RR  -4 basis points to  +451bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1013 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 Toby Chopra and Andy Bruce)