CEE MARKETS 2-Zloty leads gains in CEE as risk appetite up

                                
 * Zloty leads gains in CEE on better sentiment
                                
 * PMI indexes improving in Poland, Czech Republic
                                
 * FX still under pressure as downside risks remains
                                
 
                                
 (Adds fixed income, details)
                                
 By Dagmara Leszkowicz
                                
 WARSAW, June 1 (Reuters) - Poland's zloty led gains in
emerging Europe on Monday, with a falling U.S. dollar and rising
stock markets prompting investors to buy riskier assets.
                                
 At 0839 GMT the zloty <EURPLN=> was 1.7 percent higher
against the euro to bid at 4.436, while the Czech crown
<EURCZK=> was 0.5 percent stronger against the single currency. 
                                
 Romania's leu <EURRON=> edged up 0.3 percent. In Hungary,
which is closed for holiday, the forint <EURHUF=> rose 1
percent.
                                
 Stocks in the region also rallied on Monday with Prague's PX
<.PX> gaining more than 5 percent and Warsaw's WIG 20 <.WIG20>
more than 3 percent.
                                
 "A falling dollar to the euro is definitely the main driver
of CEE currencies," said Christian Keller, economist at Barclays
Capital. "That move traditionally boosts risk appetite."
                                
 Polish bonds also tracked the currency, rising along the
curve but dealers said the market awaits bonds supply and a
T-bills tender, due at 1000 GMT.
                                
 Last month Poland's finance ministry sold a total of 5.15
billion zlotys worth of 2-year, 10-year and 20-year bonds due in
2011, 2019 and 2029 and has already said debt supply in June on
the domestic market would be similar to last month's supply.
                                
 The Czech Finance Ministry, as expected, announced a July
and August calendar much thinner than in previous months as it
slows borrowing in the lean summer months.
                                
 
                                
 ECONOMY REBOUNDS?
                                
 The zloty was additionally supported on Monday by improving
Polish PMI data, still below the 50 mark where growth starts but
inching up in May. [ID:nLT366792].
                                
 The Czech PMI rose to a 7-month high but is still deep in
contraction territory. Analysts said it only showed the worst
has passed. [ID:nL1609885]
                                
 Dealers said the zloty was also buoyed by gross domestic
product (GDP) data on Friday showing the Polish economy still
growing in the first quarter, albeit marginally.
                                
 "It seems investors has finally noticed that Poland posted a
growth in the first quarter," said one Warsaw-based dealer.
                                
 However, analysts said further recovery would strongly
depend on developments in the euro zone economy. [ID:nLT568363]
                                
 Emerging European currencies have swung widely in 2009,
rebounding strongly since February and March lows before
settling into still somewhat wide ranges in the past month. The
forint is up 2.5 percent since May 15, while the crown has added
0.5 percent and the zloty 0.8 percent in that time.
                                
 Lagging effects in the economic downturn, like sharply
higher budget deficits and rising bad loans due to higher
joblessness, keep downside pressures on currencies, dealers and
strategists say.
                                
 "The data shows the economy is still not in good shape,"
said a Prague dealer.
                                
 On Friday the Czech statistics office said industrial output
dropped 23.2 percent year-on-year in April, much more than
analysts' expectations for a 19 percent fall. [ID:nLT143382]
----------------------MARKET SNAPSHOT-------------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2009 
Czech crown      <EURCZK=>  26.806    26.931  +0.47%    -0.2%
Polish zloty     <EURPLN=>   4.436     4.51   +1.67%    -7.24%
Hungarian forint <EURHUF=> 280.74    283.5    +0.98%    -6.12%
Croatian kuna    <EURHRK=>   7.36      7.356  -0.05%    +0.07%
Romanian leu     <EURRON=>   4.174     4.185  +0.26%    -3.82%
Serbian dinar    <EURRSD=>  94.336    94.757  +0.45%    -5.15%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond   CZ2YT=RR    -6 basis points to  147bps over bmk*
4-yr T-bond   CZ4YT=RR    -6 basis points to  +150bps over bmk*
8-yr T-bond   CZ8YT=RR   +8 basis points to  +274bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond   PL2YT=RR    -12 basis points to  +396bps over bmk*
5-yr T-bond   PL5YT=RR    -3 basis points to  +313bps over bmk*
10-yr T-bond PL10YT=RR    -4 basis points to  +268bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 0939 CET.
Currency percent change calculated from the daily domestic 
close at 1600 GMT.
                                
 
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 (Reporting by Reuters bureaus; Writing by Dagmara
Leszkowicz; Editing by Ruth Pitchford)