Wires

CEE MARKETS 2-Serbia's dinar firmer after surprise rate hike

(Recasts with Serbia rate decision, updates markets)

* Serbia's c.bank raises rates by 25 bps to 10.75 pct

* Uncertainty over Hungary's IMF talks, but auction strong

* Czech inflation in line with expectations

By Krisztina Than

BUDAPEST, Oct 9 (Reuters) - Emerging European currencieswere mixed on Tuesday with markets digesting weaker globalgrowth forecasts from the IMF and with Serbia's dinar mildlyfirmer after its central bank raised interest rates to curbinflation.

Serbia's central bank increased its benchmark interest rate

by 25 basis points to 10.75 percent reflectingconcerns over rising inflation and debt. The move surprised themarket which had expected rates to stay on hold.

Cash-strapped Serbia is under pressure to bring down itsdebt to reassure investors, and repair damaged relations withthe IMF, as financial markets have been rattled by thegovernment's expanding deficit at a time when the economy isshrinking on the back of falling demand from key trade partnerthe euro zone.

Serb inflation rose to 7.9 percent in August from 6.1percent in July. The dinar

was 0.1 percent firmershortly after the rate decision.

Neighbouring Hungary, where markets are pricing in furthermonetary easing to help the recession-hit economy after two ratecuts in the past two months, sold 60 billion forints ($275million) worth of three-month bills at an auction, whichreceived strong bids.

A fixed income trader said that remarks by Prime MinisterViktor Orban on Tuesday that Hungary could make do without anIMF deal even in 2013 had no market impact.

Hungary's government launched a media campaign on Tuesdaysaying it would not " g ive in to the IMF" , j ust weeks beforeBudapest hopes to resume talks with lenders on a financialsafety net to bolster its shrinking economy.

"The session is relatively quiet, liquidity is low butbuyers have been in a majority over the past days, especiallyaround the middle of the (yield) curve," the trader said.

Uncertainty over the IMF talks, as well as euro zoneconcerns have weighed on the forint

this week, withthe unit bid 0.3 percent lower at 1015 GMT, while the Polishzloty

was down 0.2 percent.

Polish yields were broadly flat, with five-year yields closeto all-time lows hit at the beginning of October.

"There will be rate cuts so yields must fall," said PawelBialczynski, a fixed income dealer at BRE Bank. "We are before acycle of cuts and it is natural that short- and medium-termyields are so low."

But dealers said that developments on the euro zone's debtcrisis were the main driver of sentiment across the region onTuesday.

Ministers meeting in Luxembourg have dampened any hopes onmarkets of a swift move by Spain to seek more international aid.

The Czech crown

was up 0.1 percent after Septemberinflation data was in line with forecasts at 3.4 percent.

Roman Fol, an FX dealer at Raiffeisenbank, said he expectedthe crown would move within a range of 24.85 and 25.00 per euroin quiet trade on Tuesday.

"The euro zone ministerial meeting has not brought anythingnew and Europe is in a vicious circle of negotiations," he said.

The IMF said in its bi-annual report that the globaleconomic slowdown was worsening and cut its growth forecasts forthe second time since April. It expects growth in central andeastern Europe to more than halve to 2.0 percent this year, from5.3 percent last year, and rise to only 2.6 percent in 2013.

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

Currency Latest Previous Local Localclose currency currencychange changetoday in 2012Czech crown24.9 24.929 +0.12% +2.59%Polish zloty4.074 4.066 -0.2% +9.59%

Hungarian forint

284.13 283.2 -0.33% +10.72%

Croatian kuna

7.482 7.459 -0.31% +0.45%

Romanian leu

4.566 4.567 +0.02% -5.37%

Serbian dinar

114.56 114.71 +0.13% -6.64%

Yield SpreadsCzech treasury bonds2-yr T-bond CZ2YT=RR +3 basis points to 47bps over bmk*7-yr T-bond CZ6YT=RR -1 basis points to +76bps over bmk*10-yr T-bond CZ10YT=RR -3 basis points to +87bps over bmk*Polish treasury bonds2-yr T-bond PL2YT=RR -2 basis points to +396bps over bmk*5-yr T-bond PL5YT=RR -1 basis points to +362bps over bmk*10-yr T-bond PL10YT=RR -1 basis points to +316bps over bmk*Hungarian treasury bonds3-yr T-bond HU3YT=RR -1 basis points to +640bps over bmk*5-yr T-bond HU5YT=RR +1 basis points to +612bps over bmk*

10-yr T-bond HU10YT=RR +2 basis points to +569bps over bmk*

*Benchmark is German bond equivalent.

All data taken from Reuters at 1218 CET.

Currency percent change calculated from the daily domestic

close at 1600 GMT.

(Reporting by Krisztina Than; Editing by Patrick Graham andSusan Fenton)

((krisztina.than@thomsonreuters.com)(+36 1 327 4745)(ReutersMessaging: krisztina.than.thomsonreuters.com@reuters.net))

Keywords: MARKETS EASTEUROPE/