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CEE MARKETS 2-Hungary bond yields rise at auction

* Zloty retreats, market still prices monetary easing

* Hungary increases bond sale, yields rise as demand weakens

* Stock markets mixed

By Sandor Peto and Gergely Szakacs

BUDAPEST, Oct 4 (Reuters) - The Hungarian government paid higher yields to sell domestic bonds on Thursday after the government provided mixed signals on prospects for obtaining a loan from the International Monetary Fund.

Hungary, whose bonds have been rallying in recent months, increased its bond sale to 47.5 billion forints ($214 million) from 45 billion, but average yields rose by 4-11 basis points from the previous auction two weeks ago.

Mihaly Varga, Hungary's chief negotiator with the IMF, said a long-delayed agreement could help shield the indebted country against the debt crisis in the euro zone, but he also said there might not be an agreement.

"The government in Hungary says that we need IMF help and also says at the same time that we don't," one Budapest-based fixed income trader said.

"The auction showed that the market is hungry for positive news: we either need advance in the credit talks with the IMF, or further (central bank) rate cuts," the bond trader added.

Hungarian bonds had been rising in recent weeks as the central bank has cut rates twice since August and as the European Central Bank (ECB) has eased concerns about the euro crisis by vowing to pump money into markets by buying bonds issued by governments such as Spain.

The forint

was bid at 285.31 against the euro, firmer by 0.2 percent.

The Polish zloty fell slightly after firming by 0.4 percent in the previous session when Poland's central bank kept its key rate on hold at 4.75 percent, despite expectations for a cut.

The zloty

was bid at 4.088 against the euro at 1037 GMT, weaker by 0.1 percent from Wednesday's close. Polish government bonds were flat.

As Polish growth slows, the bank is still widely expected to cut rates soon to follow the Czech and Hungarian central banks. Rate cuts can weaken currencies and strengthen government debt, at least at the short end of the yield curve.

Analysts at Commerzbank said if Polish economic data were to disappoint in the weeks ahead, confirming market expectations that Wednesday's central bank decision only delayed future monetary easing, the zloty could come under pressure.

"The rate step might simply have been postponed," Commerzbank said.

"Should economic data over the coming weeks be similarly disappointing as last month, rate cut speculation is likely to gather momentum again ending the breather the PLN enjoyed."

A Reuters poll, released on Wednesday, forecast the zloty would ease to 4.15 by the end of the year before rebounding to 4.05 within 12 months.

"The market is still pricing 100 basis points of cuts in the next 12 months. However, the timing of the first cut has been moved from September to November," SEB said in a note.

Elsewhere, the Czech crown was flat at 24.996, while the Romanian leu

eased 0.3 percent to 4.547.

Equity markets in the region were mixed, with Bucharest's main index

rising 0.7 percent, while Warsaw

shed 0.3 percent.

--------------------------MARKET SNAPSHOT--------------------

Currency Latest Previous Local Local close currency currency change change today in 2012 Czech crown 24.996 25 +0.02% +2.2% Polish zloty 4.088 4.085 -0.07% +9.21%

Hungarian forint

285.31 285.75 +0.15% +10.27%

Croatian kuna 7.477 7.475 -0.03% +0.52% Romanian leu 4.547 4.533 -0.31% -4.97% Serbian dinar

115.02 115.06 +0.03% -7.02%

Yield Spreads Czech treasury bonds 2-yr T-bond CZ2YT=RR +3 basis points to 50bps over bmk* 7-yr T-bond CZ7YT=RR +4 basis points to +93bps over bmk* 10-yr T-bond CZ9YT=RR -1 basis points to +137bps over bmk* Hungarian treasury bonds 3-yr T-bond HU3YT=RR +2 basis points to +662bps over bmk* 5-yr T-bond HU5YT=RR 0 basis points to +634bps over bmk*

10-yr T-bond HU10YT=RR -1 basis points to +594bps over bmk*

*Benchmark is German bond equivalent.

All data taken from Reuters at 1237 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 Spot FX rates Eastern Europe spot FX Middle East spot FX Asia spot FX Latin America spot FX Other news and reports World central bank news Economic Data Guide fficial rates Emerging Diary Top events Diaries Diaries Index

($1 = 221.9470 Hungarian forints)

(Reporting by Reuters bureaus; Writing by Gergely Szakacs; Editing by Susan Fenton)

((gergely.szakacs@thomsonreuters.com)(+36 1 327 4748)(Reuters Messaging: gergely.szakacs.thomsonreuters.com@reuters.net))

Keywords: MARKETS EASTEUROPE/

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