CEE MARKETS 3-FX weaker; zloty unfazed by Polish budget move

                                
 * FX retreat, zloty steady after budget revision
                                
 * Poland starts two-day rate-setting meeting
                                
 * IMF brings focus back to Latvia's economic pain 
                                
 
  (Updates throughout)
                                
 By Marius Zaharia and Jason Hovet
                                
 BUCHAREST/PRAGUE, June 23 (Reuters) - The Czech crown
retreated from this week's highs on Tuesday, while market relief
that Poland widened its budget gap target less than feared
buoyed the zloty.
                                
 The Polish government lifted its central budget gap target
on Tuesday by almost 50 percent to 27 billion zlotys from 18.2
billion, and the International Monetary Fund forecast the wider
Polish general gap to reach 6 percent of gross domestic product.
                                
 The market had expected a revised budget although estimates
on the amount of the deficit target varied, with some analysts
expecting a rise in the tens of billions. [ID:nLN184960]
                                
 "Sentiment is slightly better after the government announced
its budget revision as some part of the market has expected a
bigger increase," said one Warsaw-based dealer. 
                                
 "However we must remember, that the sentiment improvement is
limited by a growing risk aversion."
                                
 By 1424 GMT, the zloty was bid at 4.544 to the euro, level
with Monday's domestic close after slipping to its lowest level
this month in early trade.
                                
 The crown <EURCZK=> fell 0.6 percent against the euro, while
the Hungarian forint <EURHUF=> dropped 0.2 percent and Romania's
leu <EURRON=> dipped to 4.233 per euro.
                                
 Investors pulled back from trades favouring the Czech crown,
which has gained 3 percent in a week as it neared its 2009 high
on Monday and is at a record in indicative pricing against the
zloty, according to Reuters data <PLNCZK=REU>.
                                
 Pessimism over Poland's budget and a safe-haven move toward
the less-indebted Czech economy had driven the position squeeze,
and dealers said volumes had doubled in previous sessions.
                                
 Doubts over a global economic recovery also encouraged
profit taking on Monday gains, while IMF comments this week that
Latvia was in a worse shape than expected raised concerns the
lat would have to be devalued in the longer run -- a concern
that bounced around currencies this month.
                                
 
                                
 CENTRAL BANK WATCH
                                
 Polish bonds were little changed after the Polish budget
data, which eased some concerns of a borrowing crunch. Dealers
said expectations of a Wednesday interest rate cut weighed.
                                
 The Polish central bank is expected to cut by 25 basis
points to 3.5 percent, with the Czechs seen following suit on
Thursday.
                                
 Analysts expect Romania to cut 50 basis points from its 9.5
percent key rate next week, leaving Hungary's recession-hit
economy with the highest interest rates in the European Union.
                                
 Stock markets in the region extended this week's drop.
Warsaw's stock exchange <.WIG20> added to 6 percent loss from
Monday due to growing concern Poland will use cash wrung from
state-controlled companies to limit the deficit. [ID:nLJ30094]
                                
 
--------------------------MARKET SNAPSHOT--------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2009 
Czech crown      <EURCZK=>   26.192   26.046  -0.56%   +2.14%
Polish zloty     <EURPLN=>    4.544    4.544   0%      -9.44%
Hungarian forint <EURHUF=>  280.89   280.5    -0.14%   -6.17%
Croatian kuna    <EURHRK=>    7.285    7.27   -0.21%   +1.1%
Romanian leu     <EURRON=>    4.233    4.227  -0.14%   -5.16%
Serbian dinar    <EURRSD=>   93.42    93.16   -0.28%   -4.22%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond   CZ2YT=RR    -4 basis points to  147bps over bmk*
4-yr T-bond   CZ4YT=RR    -18 basis points to  +160bps over bmk*
8-yr T-bond   CZ8YT=RR   +7 basis points to  +288bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond   PL2YT=RR    -2 basis points to  +383bps over bmk*
5-yr T-bond   PL5YT=RR   +5 basis points to  +332bps over bmk*
10-yr T-bond PL10YT=RR    -3 basis points to  +288bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond   HU3YT=RR    -8 basis points to  +837bps over bmk*
5-yr T-bond   HU5YT=RR    -4 basis points to  +765bps over bmk*
10-yr T-bond   HU10YT=RR  -3 basis points to  +684bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1626 CET.
Currency percent change calculated from the daily domestic 
close at 1500 GMT.
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 (Reporting by Reuters bureaus, Writing by Marius Zaharia/Jason
Hovet, Editing by Mike Winfrey/Ruth Pitchford)