CEE MARKETS 2-Forint gains as rate cut prospects recede

                                
 * Investors shift from zloty to forint on rate expectations
                                
 * Leu close to highs after cbank "verbal intervention"
                                
 * Zloty erases some losses after retail sales data
                                
 
 (Adds detail on Hungary markets, bonds, Poland rates)
                                
 By Sam Cage
                                
 BUCHAREST, March 23 (Reuters) - Hungary's forint extended
its recent gains on Wednesday as the prospect of rate cuts
receded, while Romania's leu was close to 10-month highs after
the central bank said its strength was underpinned by economic
fundamentals. 
                                
 The forint <EURHUF=> rose 0.4 percent past 270 against the
euro, gaining for the fifth successive session, which dealers
said reflected a shift from zlotys into forints as investors
revise expectations both of an imminent Polish interest rate
hike and of lower rates in Hungary.
                                
 Expectations that Hungary will issue a new benchmark dollar
bond after investor roadshows in the United States and Europe
are completed were also supporting the currency.
                                
 "The rate hike in Poland seems to be postponed, while our
new Monetary Council is not expected to start cutting rates like
crazy," a forex dealer in Budapest said. [ID:nLDE72K0QV]
                                
 Hungarian government bond yields dropped by a few basis
points, tracking gains in the forint and as market optimism over
Thursday's bond tender <HUISSUE> and a planned FX bond issuance
supported sentiment.
                                
 Financial markets may be pricing in too many Polish interest
rate rises over the next year, an adviser to the central bank
governor said this week, adding that Poland may have a "huge"
twin deficit. [ID:nSLALEE7RH]
                                
 Poland's zloty <EURPLN=> rose after data showing retail
sales rose by a much higher-than-expected 12.2 percent
year-on-year in February, erasing earlier gains to trade 0.1
percent lower on the day by 1100 GMT. [ID:nLDE72M0PL]
                                
 "The data, especially growth in such segments as furniture,
confirms the economy continues to grow and a recent slowdown in
sales was only temporary," said Piotr Kalisz, chief economist at
Citibank in Warsaw.
                                
 
                                
 LEU CLOSE TO HIGHS
                                
 The leu <EURRON=> rose 0.1 percent to 4.124 per euro,
pushing towards a 4.111 high hit last May after the central bank
told Reuters on Tuesday recent currency strength was underpinned
by economic fundamentals. [ID:nLDE72L18A]
                                
 "The statement could be considered as a verbal intervention,
and the reason for the sharp move in the pair (was that) market
players interpreted it as implying the (central bank) is more
than comfortable with current EUR/RON levels," said ING's
Nicolaie Alexandru-Chidesciuc.
                                
 One dealer said he was looking for consolidation at around
4.12-4.14. "Flows are pretty good and yesterday I guess was the
largest traded volume for this year," he added.
                                
 The Czech Finance Ministry aims to sell 7 billion crowns at
auction of its floating rate notes maturing in 2016
<CZ1002331=>, and dealers expected good demand for the paper
which they said looked cheap.
                                
 Dealers also said a bond with a floating coupon could be
attractive for investors if interest rates are set to rise.
                                
 The Czech crown <EURCZK=> was near flat against the euro and
stocks were mixed across the region, with Prague <.PX> the top
gainer, rising 0.4 percent.
--------------------------MARKET SNAPSHOT--------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2011 
Czech crown      <EURCZK=>   24.389   24.394  +0.02%   +2.51%
Polish zloty     <EURPLN=>    4.039    4.034  -0.12%   -2.01%
Hungarian forint <EURHUF=>   269.27    270.2  +0.35%   +3.23%
Croatian kuna    <EURHRK=>     7.38    7.374  -0.08%       0%
Romanian leu     <EURRON=>    4.124    4.127  +0.07%   +2.64%
Serbian dinar    <EURRSD=>   103.21   103.22  +0.01%   +2.63%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond   CZ2YT=RR     0 basis points to    7bps over bmk*
7-yr T-bond   CZ7YT=RR     0 basis points to  +67bps over bmk*
10-yr T-bond   CZ9YT=RR   +1 basis points to  +68bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond   HU3YT=RR    0 basis points to  +484bps over bmk*
5-yr T-bond   HU5YT=RR   +1 basis points to  +460bps over bmk*
10-yr T-bond   HU10YT=RR +1 basis points to  +403bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1200 CET.
Currency percent change calculated from the daily domestic 
close at 1600 GMT.

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 (Reporting by Reuters bureaus)