CEE MARKETS 2-FX softer as poor sentiment weighs

                                
   (Adds details, fixed income, byline)
                                
 By Jason Hovet
                                
 PRAGUE, Jan 9 (Reuters) - Central Europe's currencies
weakened on Friday, with the Czech crown falling after a steep
drop in inflation and Romania's leu near a record low, while the
Russia-Ukraine gas dispute weighed on sentiment in the region.
                                
 Data so far this year has entrenched expectations that
emerging Europe's economies are set for a deep slowdown after
years of fast growth, and analysts expect prospects of monetary
easing to weigh on the region's currencies.
                                
 Romania's leu <EURRON=> stuck to record low levels around
4.2 per euro on Friday with the country's large current account
deficit a concern, while Hungary's forint <EURHUF=> dropped 0.9
percent to 275.95 per euro, near lows hit when the global
financial crisis swept through the region in October.
                                
 "The sentiment is still poor on Romania and commercial
demand adds up to it," one dealer said. "But 4.2 seems a level
of resistance; a London-based player is booking profits at this
level and some have started to build positions betting on a
potential central bank intervention."
                                
 Dealers said the central bank covertly supported the leu in
December, but has thus far stepped aside.
                                
 In the Czech Republic, December inflation continued a steep
drop back to the central bank's target range, data showed on
Friday, raising expectations interest rates will fall to new
lows in the first half of this year. [ID:nL9687650]
                                
 By 1039 GMT, the crown <EURCZK=> fell 1 percent from
Thursday's levels to 26.5 per euro. Poland's zloty was a touch
up but still past the key 4.0 per euro level.
                                
 Currencies ended 2008 sharply down, and have fallen back in
the past few days after a short-lived rally to start 2009 as
economic woes come to focus.
                                
 The hard-hit zloty is off 18 percent since Oct. 1, while the
forint has lost 12.4 percent, the crown 6.9 percent and leu 9.8
percent.
                                
 "It's still the same story. Corrections are part of the
game, and we saw a healthy correction but the (weakening) trend
now continues," a Prague dealer said.
                                
 On Thursday, data showed Hungarian industrial output dived
in November and the Czech trade balance posted a deficit with a
collapse of demand in Europe taking a larger toll on eastern
Europe. [ID:nL8122284]
                                
 Adding to concern, a dragging Russia-Ukraine gas dispute
that has cut supplies to Europe has raised worries over
production cuts, further denting sentiment about central
European assets. [ID:nL8375958]
                                
 The region's largest economy Poland got a boost on Thursday
with news the world's No. 2 PC maker was moving its European
manufacturing base from Ireland to Poland, but was not enough to
change the view on softer growth and zloty weakening.
                                
 "Its always a good news in terms of a business climate, but
we have to remember, that in the time of crisis good news are
overshadowed by the bad ones," a Warsaw dealer said.
                                
 
----------------------MARKET SNAPSHOT-------------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2009 
Czech crown      <EURCZK=>   26.5     26.237  -1.00%   +0.95%
Polish zloty     <EURPLN=>    4.042    4.049  +0.17%   +1.77%
Hungarian forint <EURHUF=>  275.95   273.4    -0.93%   -4.7%
Croatian kuna    <EURHRK=>    7.318    7.307  -0.15%   +0.64%
Romanian leu     <EURRON=>    4.2      4.179  -0.5%    -4.62%
Serbian dinar    <EURRSD=>   93.669   94.26   +0.63%   -4.68%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond   CZ3YT=RR    -6 basis points to  178bps over bmk*
5-yr T-bond   CZ5YT=RR    -3 basis points to  +166bps over bmk*
10-yr T-bond   CZ9YT=RR   +4 basis points to  +106bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond   HU3YT=RR   +3 basis points to  +826bps over bmk*
5-yr T-bond   HU5YT=RR   +4 basis points to  +754bps over bmk*
10-yr T-bond   HU10YT=RR +4 basis points to  +597bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1139 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 Ruth Pitchford and Andy Bruce)