CEE MARKETS 2-Ukraine weighs on regional markets, but Hungary auction strong

* Hungary auction surprisingly strong despite Ukraine fear

* After rate cut, no relief to forint from auction

* Ukraine, emerging market concerns weigh on CEE assets

BUDAPEST, Feb 20 (Reuters) - Central European assets fell on Thursday due to fears that the turmoil in neighbouring Ukraine was worsening and could fuel foreign capital withdrawals from regional markets. Hungary's forint led the decline, hovering near 2-year lows to the euro, even though unexpectedly strong demand at a government bond auction dispelled fears of an immediate sell-off. But yields continued to rise at the auction, and a sell-off remains a risk if the Ukrainian crisis worsens or if wobbles in other emerging markets boost risk aversion, dealers said. "Of course Ukraine has an impact, though this (market weakness) is still mostly caused by the general emerging market turmoil," one Budapest-based fixed income trader said. "Bigger hit from Ukraine is in the cards, but this is not that yet." Emerging markets have generally been hit by concerns about slowing growh in China and by a withdrawal of monetary stimulus the U.S. Federal Reserve. The region's eastern neighbour Ukraine is living by far the bloodiest hours of its 22-year post-Soviet history, with dozens of people killed since Tuesday in clashes in its capital Kiev. Central European states, once also part of the Soviet bloc, are looking westward and they have much weaker financial and trade links with Ukraine than with the European Union. But there is fear about investment contagion and waves of refugee into neighbouring states. Some Central European firms also have operations in Ukraine that could be disrupted. The Ukrainian units of Poland's and Hungary's biggest banks had to keep some branches closed due to the clashes in Kiev. A spokeswoman for Polish paint producer Sniezka, which has a factory in the Ukrainian city of Jaworow, near the Polish border, said that road blocks have halted any transport to and from the factory, but production so far was going on normal. "Due to the road blocks, transport to and from the factory is impossible," said the spokeswoman. "The unrest is not impacting the production so far." Sniezka's shares fell 2.3 percent, and the Warsaw bourse led a decline of stocks in the region, with its main index shedding 0.9 percent. The weakening of Central European equities was not out of line with a decline in Western European bourses. Worries over Ukraine also weighed on the region's currencies. The forint and the Romanian leu fell 0.4 percent against the euro, Poland's zloty shed 0.3 percent and the Czech crown eased 0.1 percent.

CONTAGION CHANNELS Poland's 2013 exports to Ukraine were worth $5.7 billion, or about 1 percent of its economy and near 3 percent of exports. Ukraine contributes near a 10th of Hungary's trade surplus, but without that it would still have a strong trade balance. Continued turmil in Ukraine could mainly hit Poland, whose zloty is the most liquid in the region, and Hungary whose markets have been the most vulnerable in the region to any emerging market contagion, due to its high debt, frequent policy surprises and an unflinching interest rate cut course of its central bank. Market participants have said it was a key risk that some of the key investors in Ukraine's debt market, hit by a sell-off, were also present in the region, mainly Hungary. Robust demand at Thursday's Hungarian auction expelled those immediate fears, pushing the 3-year bond yield down The yield was still slightly higher from Wednesday and only a 1.5 percentage point surge in the past four weeks shored up the buying side for the papers, traders said. The central bank cut rates by 15 basis points to 2.7 percent on Tuesday, defying the rise in short-term yields and a trend of rate hikes or flat rates in other emerging economies. Dealers said this maintained the risk of a forint sell-off. "Ukraine does not help, but the main factor is that (some investors) think after the cut and the dovish comments that monetary policy is not credible," one dealer said. "They will not relax their hold - we should prepare for a weaker forint." CEE MARKETS SNAPSHOT AT 1310 CET

************************* CURRENCIES ************************

Latest Previous Daily Change bid close change in 2014 Czech crown 27.375 27.345 -0.11% -0.16% Hungarian forint 313.610 312.490 -0.36% -5.31% Polish zloty 4.179 4.168 -0.28% -0.70% Romanian leu 4.521 4.504 -0.37% -1.35% Croatian kuna 7.667 7.666 -0.01% -0.64% Serbian dinar 115.890 115.820 -0.06% -1.20%

Note: daily change calculated from previous close at 1700 GMT

**************************** STOCKS **************************

Latest Previous Daily Change close change in 2014 Prague 1033.99 1038.36 -0.42% +4.77% Budapest 18193.29 18272.57 -0.43% -0.77% Warsaw 2464.41 2486.13 -0.87% +2.50% Bucharest 6407.51 6431.60 -0.37% -1.09% ***************************** BONDS ************************** Yield Yield Spread Daily (bid) change vs Bund change in Czech Republic spread 2-year 0.801 +0.322 +68bps +31bps 5-year 1.179 +0.007 +52bps +1bps 10-year 2.312 -0.001 +65bps 0bps


3-year 5.060 +0.040 +490bps +4bps 5-year 5.340 -0.010 +468bps -1bps 10-year 6.260 -0.030 +460bps -3bps*******************

FORWARD RATE AGREEMENTS ******************

3x6 6x9 9x12 3M interbank Czech Rep 0.410 0.420 0.450 0.37 Hungary 3.200 3.650 3.930 2.73 Poland 2.750 2.810 2.970 2.71

Note: FRA quotes are for ask prices