CEE MARKETS 3-Hungarian forint leads FX up on Latvia hopes

                                
 * Latvia hopes boost sentiment, forint leads
                                
 * Hungary dep governor looks for lasting sentiment change
                                
 * CEE slides into recession [ID:nL9461434]
                                
 
                                
(Adds comments on forint, updates prices.)
                                
 By Jason Hovet and Sandor Peto
                                
 PRAGUE/BUDAPEST, June 9 (Reuters) - The Hungarian forint
rose to a one-week high on Tuesday, leading central European
currencies after news Latvia was close to agreeing budget cuts
that could get it more IMF funds boosted sentiment.
                                
 Central Europe has been on shaky ground in the past week
because of worries the Baltic state would need to devalue its
currency to fight a steep economic slide, and investors are
nervous about fallout for other emerging markets in the region.
                                
 The forint <EURHUF=> jumped 1.7 percent from Monday's close
to 280.89 to the euro by 1139 GMT, extending gains after
Hungarian central banker Ferenc Karvalits said rate cuts cannot
start until more evidence the positive tone in markets is
lasting. [ID:nL9474676]
                                
 Dealers said the forint was helped by the closing of long
euro positions opened last week and some cross-plays with the
Polish zloty <EURPLN=>.
                                
 "There is talk that there are zloty sales for forints as
interest rates in Hungary are higher," one dealer said.
                                
 In Latvia, leaders agreed late on Monday to cut around 500
million lats ($987.6 million) in public spending [ID:nL8424688],
giving a boost to central European currencies that gained on
Tuesday despite poor Czech and Hungarian gross domestic product
(GDP) readings.
                                
 The zloty <EURPLN=> added 0.9 percent from Monday's domestic
close to 4.481. The Czech crown <EURCZK=> rose to 26.764 per
euro, 0.5 percent up, and Romania's leu<EURRON=> firmed 0.1
percent to 4.196.
                                
 "Latvia remains in focus, with the government's approval of
a further substantial budget tightening boosting sentiment..."
Cheuvreux analysts said in a morning note.
                                
 Dealers said a stronger euro, the region's reference
currency, added to early gains, while central European stocks
rose up to 1 percent.
                                
 Currencies had lost up to 3 percent last week, led by the
forint, as some policymakers in central Europe warned of
spillover effects from Latvia's problems.
                                
 The IMF and EU executive have said the Baltic nation must
make further spending cuts before receiving fresh loans.
                                
 
                                
 BONDS BOOSTED
                                
 Tuesday's relief rally from Latvia, where the lat was at a
four-month high [ID:nL9570125], gave a boost to bonds, with
Hungarian yields dropping with the stronger forint.
                                
 "The forint may have been helped by comments from Karvalits
which suggest there will be no interest rate cut at the central
bank's next meeting," a Budapest fixed-income dealer said.
                                
 Nagging economic worries as central Europe's export-reliant
economies await a rebound in euro zone consumption have hung on
markets, and central Europe has lagged emerging peers.
                                
 The Czech and Hungarian statistics offices confirmed sharp
economic falls following earlier flash estimates on Tuesday.
Hungary's GDP shrank 6.7 percent on the year in the first
quarter, more than first thought, and the Czech Republic 3.4
percent. [ID:nL9665903] [ID:nL9179147]
                                
 Currencies have gained around 10 percent in a rocky climb up
during a months-long emerging risk rally started after February
and March lows, but, led by the zloty, are down up to 25 percent
in the past year.
----------------------MARKET SNAPSHOT-------------------------
Currency                    Latest   Previous Local    Local
                                
                                  close    currency currency
                                
                                           change   change
                                
                                           today    in 2009 
Czech crown      <EURCZK=>   26.764    26.888  +0.46%    -0.04%
Polish zloty     <EURPLN=>   4.481    4.523  +0.94%    -8.17%
Hungarian forint <EURHUF=>   280.89    285.75  +1.73%    -6.17%
Croatian kuna    <EURHRK=>   7.314    7.312   -0.03%   +0.7%
Romanian leu     <EURRON=>   4.196    4.199  +0.07%    -4.33%
Serbian dinar    <EURRSD=>   93.773    93.816  +0.05%    -4.58%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond   CZ2YT=RR   +13 basis points to  131bps over bmk*
4-yr T-bond   CZ4YT=RR   +2 basis points to  +141bps over bmk*
8-yr T-bond   CZ8YT=RR   +12 basis points to  +253bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1339 CET.
Currency percent change calculated from the daily domestic 
close at 1600 GMT.
                                
 
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 (Reporting by Reuters bureaus, writing by Jason Hovet and
Sandor Peto; Editing by Stephen Nisbet)