CEE MARKETS 3-Polish zloty leads FX lower, stocks cut losses

                                
 * Stocks snap winning streak to drag on FX
                                
 * Poles sell less in 5-yr tender, yield up 
                                
 * Diverging econ/fiscal paths open new trades
                                
 
 (Updates with Polish bond sale)
                                
 By Jason Hovet
                                
 PRAGUE, Sept 9 (Reuters) - The Polish zloty extended losses
on Wednesday, weighed under by lingering budget concerns and
retreating with other central European currencies even as stock
markets recovered from earlier lows.
                                
 The zloty <EURPLN=> lost 0.8 percent to 4.117 to the euro by
1231 GMT, and Hungary's forint <EURHUF=> dipped 0.5 percent to
the weak side of 270 per euro. Romania's leu <EURRON=> lost 0.1
percent.
                                
 "There is some profit taking, with good interest from
offshore names in selling the zloty," said a Warsaw dealer,
echoing other dealers who said budget worries could drag on the
unit.
                                
 The Poles sold less bonds than a month ago at a 5-year bond
tender on Wednesday, and the yield was up nearly 20 basis points
in the first debt sale since weekend news the government
expected the 2010 budget deficit to almost double this year's
plan. [ID:nL9728978]
                                
 The paper was steady after the tender, yielding 5.72
percent.
                                
 Bonds had taken the brunt of the budget impact on Monday,
jumping around 7 basis points along the curve on debt supply
worries and reversing a rally seen over the summer months.
                                
 
                                
 DIVERGING VIEWS
                                
 Signs of a better global economic outlook have boosted
emerging assets such as those in central Europe, while the safer
U.S. dollar has dropped to a year low as investors shunned it
for gold. Dealers said markets would take further clues from the
dollar's direction. [ID:nT186026]
                                
 Against the dollar, the zloty <PLN=> and crown <CZK=> are
trading at their strongest since December and October,
respectively.
                                
 Central European stocks mostly snapped this week's winning
streak, edging down slightly <.PX> <.BUX>, with only Warsaw
<.WIG20> reaching positive ground, as investors paused from a
rally in riskier assets that has benefitted the region.
                                
 The Czech crown <EURHUF=> dipped, easing only a touch after
August annual inflation data came out lower than expected,
boosting expectations interest rates would stay longer at a
record low of 1.25 percent. [ID:nL9191590]
                                
 Dealers said the Polish budget impact could start being felt
more on the zloty as appetite for riskier assets wanes, and
markets are starting to look at more cross trades in the region.
                                
 "The question of (the Polish) deficit is obviously negative
news which works against the zloty and in favour of the
Hungarian forint," said a Warsaw trader, adding an attraction
was the forint's higher yield -- with Hungarian rates at 8
percent compared to Poland's 3.5 percent.
                                
 On Tuesday, Danske Bank recommended buying the zloty against
the crown due to better economic prospects. [ID:nL8307586]
                                
 Analysts generally see an end to rate cuts in Poland and the
Czech Republic, while, with the highest rates in the European
Union, Hungary and Romania are seen easing going into next year.
                                
 "Normally news of cuts would weaken the forint but analysts
say there's value in going long," a Budapest dealer said.
                                
 
--------------------------MARKET SNAPSHOT--------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2009 
Czech crown      <EURCZK=>   25.485   25.479  -0.02%    +4.98%
Polish zloty     <EURPLN=>    4.117    4.087  -0.73%    -0.05%
Hungarian forint <EURHUF=>  270.85   269.64   -0.45%    -2.7%
Croatian kuna    <EURHRK=>    7.335    7.333  -0.03%    +0.41%
Romanian leu     <EURRON=>    4.246    4.241  -0.12%    -5.45%
Serbian dinar    <EURRSD=>   93.09    93.13   +0.04%    -3.88%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond   CZ3YT=RR   +1 basis points to  194bps over bmk*
7-yr T-bond   CZ7YT=RR   +11 basis points to  +192bps over bmk*
10-yr T-bond   CZ10YT=RR   +12 basis points to  +192bps over
bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond   PL2YT=RR    -2 basis points to  +404bps over bmk*
5-yr T-bond   PL5YT=RR    -4 basis points to  +337bps over bmk*
10-yr T-bond PL10YT=RR    -6 basis points to  +282bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond   HU3YT=RR    -17 basis points to  +629bps over bmk*
5-yr T-bond   HU5YT=RR    -18 basis points to  +565bps over bmk*
10-yr T-bond   HU10YT=RR  -10 basis points to  +491bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1434 CET.
Currency percent change calculated from the daily domestic 
close at 1600 GMT.
For related news and prices, click on the codes in brackets: All
emerging market news [EMRG]
Spot FX rates
Eastern Europe spot FX <EEFX=>    Middle East spot FX <MEFX=>
Asia spot FX <ASIAFX=>       Latin America spot FX <LATAMFX=>
Other news and reports  
World central bank news [CEN]  Economic Data Guide <ECONGUIDE> 
Official rates [GLOBAL/INT]  Emerging Diary [EMRG/DIARY] 
Top events [M/DIARY]  Diaries [DIARY] Diaries Index [IND/DIARY] 
 (Reporting by Reuters bureaus, writing by Jason Hovet, editing
by Victoria Main)