CEE MARKETS 3-FX steady as Latvia continues to weigh

                                
 * FX mixed, Latvia woes still in view
                                
 * Hungary ruling party hit in EP elections, markets unshaken
                                
 * Poland drops longer-dated bond auction
                                
 
  (Updates throughout)
                                
 By Dagmara Leszkowicz and Jason Hovet
                                
 WARSAW/PRAGUE, June 8 (Reuters) - Central European
currencies held steady on Monday, stabilising from last week's
sharp losses although nerves stayed up as markets looked to
developments in Latvia's battle to hold its currency peg.
                                
 The Hungarian forint <EURHUF=> led gains, edging up 0.3
percent, and markets also shrugged off a weekend rout for the
country's governing party in European elections after the ruling
Socialists backed Prime Minister Gordon Bajnai. [ID:nL8655960]
                                
 The Hungarian results raised prospects the minority
government could be destabilised as it tries to pull Hungary
from recession. [ID:nL7234326] [ID:nL8454507]
                                
 Investors also eyed Latvia's efforts, which include heavy
budget cuts, to secure more International Monetary Fund and
European Union aid and avoid bankruptcy while its economy sinks.
                                
 Worries it would devalue the lat knocked central European
currencies 1-3 percent last week.
                                
 "(Latvia) is still very much on the radar screen," said
Martin Blum, an emerging strategist for UniCredit in Vienna.
                                
 On Monday, Poland's zloty <EURPLN=> dipped 0.3 percent to
bid at 4.559 to the euro by 1357 GMT.
                                
 Government bonds firmed on the long-end due to closed short
positions after the Polish finance ministry cancelled plans to
sell longer-dated papers on Wednesday. The ministry said it had
sold enough long papers in auctions the last two months.
                                
 Some dealers earlier had  said it may have been worried
about finding demand as governments in the region struggle to
sell long maturities in the face of widening budget gaps.
[ID:nL8628620]
                                
 The Czech crown <EURCZK=> lost 0.1 percent from Friday's
domestic close, hovering around 27 to the euro. Romania's leu
<EURRON=> was flat in a holiday-shut market.
                                
 Stocks in the region were in the red on Monday losing 1-2
percent to open the week softer after previous gains.
                                
 
                                
 UNDERPERFORMANCE
                                
 Blum said Latvia worries, a weakening euro and generally
poor news flows from central Europe could lead the region to
underperform global peers this week. "The general backdrop for
east Europe will be challenging," he said.
                                
 Latvia's central bank sold 237.3 million euros last week in
defence of the lat, more than the previous week. [ID:nL8416192]
                                
 Some policymakers in central Europe have warned of spillover
effects from Latvia's problems. Analysts, though, note there is
no fundamental link between this region and the Baltics, but
said Baltic woes could raise central Europe's risk perception.
                                
 "Every one is now waiting to see what's going to happen to
Latvia next," said Andrzej Bowtruczuk, a currency trader at BRE
Bank in Warsaw.
                                
 Currencies have lost up to a third in the last year due to
sharply slowing or contracting economies, although they have
gained around 10 percent since March in a risk rally.
                                
 But with the lagging effects of rising unemployment,
worsening loans and widening government budget gaps, strategists
have expected currencies to keep under pressure, and some have
worried over political stability in the region.
                                
 
--------------------------MARKET SNAPSHOT--------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2009 
Czech crown      <EURCZK=>   26.981   26.949  -0.12%   -0.85%
Polish zloty     <EURPLN=>    4.559    4.545  -0.31%   -9.74%
Hungarian forint <EURHUF=>  287.12   288.03   +0.32%   -8.21%
Croatian kuna    <EURHRK=>    7.313    7.345  +0.44%   +0.71%
Romanian leu     <EURRON=>    4.217    4.217   0%      -4.8%
Serbian dinar    <EURRSD=>   93.75    93.976  +0.24%   -4.55%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond   CZ2YT=RR   +35 basis points to  135bps over bmk*
4-yr T-bond   CZ4YT=RR    -3 basis points to  +137bps over bmk*
8-yr T-bond   CZ8YT=RR   +9 basis points to  +252bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond   PL2YT=RR    -9 basis points to  +375bps over bmk*
5-yr T-bond   PL5YT=RR   +1 basis points to  +301bps over bmk*
10-yr T-bond PL10YT=RR   +1 basis points to  +261bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1558 CET.
Currency percent change calculated from the daily domestic 
close at 1500 GMT.
                                
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 (Reporting by Reuters bureaus, Writing by Dagmara Leszkowicz
and Jason Hovet)