CEE MARKETS 3-Bonds up on rate cut hope, Poland talks down zloty

(Adds bond market, new comments, updates prices)

* Polish, Hungarian bonds firmer on comments suggesting rate cuts

* Polish PM talks down zloty, Hungary IMF deal hope shields forint

* Serbian dinar continues rise after rate increase

By Karolina Slowikowska and Sandor Peto

WARSAW/BUDAPEST, Oct 10 (Reuters) - Hungarian and Polish government bonds firmed on Wednesday as central bankers indicated further interest rate cuts to help their economies hit by Europe's economic slowdown.

The expectations for rate cuts weakened the zloty, which was also hit by Polish Prime Minister Donald Tusk's comment that an exchange rate of 4.5 zlotys to the euro, much weaker than now, would be good for the economy.

Hungary's forint firmed as market hopes for the resumption of talks with the International Monetary Fund on a safety net and new budget cuts announced last week underpinned the volatile currency.

Elsewhere in Central Europe, the dinar

firmed 0.6 percent to the euro to 113.85 by 1441 GMT, extending gains after the Serbian central bank caused surprise by raising its benchmark interest rate by 25 basis points to 10.75 percent on Tuesday.

In several states of the region, central banks are seen easing monetary policy rather than tightening as the euro zone crisis weighs on exports and consumer sentiment.

Poland's zloty

fell 0.3 percent against the euro to 4.09, pressured by Tusk's preference for a weaker unit, while demand for Polish government bonds limited the zloty's loss.

Polish yields fell 2-3 basis points, with 2-year bonds trading at 3.99 percent after dovish comments by Polish central bankers.

Rate setter Andrzej Bratkowski, who has been calling for cuts for several months, told Reuters he would now back even a big one-off reduction of 75 basis points in the key rate, from the current 4.75 percent, to help the ailing economy.

Jerzy Hausner, regarded as an inflation hawk, meanwhile told state news agency PAP that the bank's inflation projections due next month could pave the way for rate easing.


Hungarian government bond yields dropped 5 basis points, with 3-year paper trading at 6.51 percent as the minutes of the last central bank rate meeting confirmed the bank may continue rate cuts that started in August, depending on market and inflation risks.

"FRAs (forward rate agreements) price in a 25 basis point cut (in the 6.5 percent base rate) in October and that the base rate could go down to 6 percent or even lower by the end of the year," one Budapest-based fixed income trader said.

The forint

firmed half a percent to 281.92 per euro as investors shrugged off sobering comments by rating agency Fitch.

Fitch warned Hungary not to go without International Monetary Fund support after months of wrangling which has failed to result in a financing deal.

The leu

firmed 0.2 percent to 4.565 against the euro as Romania's annual inflation jumped to 5.3 percent on the year in September, above the central bank's target and reducing its scope to cut interest rates.

"We still expect the depreciation trend to continue, possibly past 4.60 per euro in the coming weeks, but the weakening could slow a bit given the recent inflation surprise," said ING analyst Mihai Tantaru.

"We doubt the consumer price dynamics will shift the trend of the RON as the market will probably not look for an extended rate hiking cycle given the poor growth prospects, which were freshly darkened by today's industrial output data."

Elsewhere, the Czech crown firmed 0.4 percent to 24.89 against the euro. Central European equity markets were mixed.

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

Currency Latest Previous Local Local close currency currency change change today in 2012 Czech crown

24.89 24.995 +0.42% +2.63%

Polish zloty 4.09 4.079 -0.27% +9.16% Hungarian forint 281.92 283.36 +0.51% +11.59% Croatian kuna 7.49 7.485 -0.07% +0.34% Romanian leu 4.565 4.574 +0.2% -5.35% Serbian dinar 113.89 114.57 +0.6% -6.09% Yield Spreads Czech treasury bonds 2-yr T-bond CZ2YT=RR 0 basis points to 46bps over bmk* 7-yr T-bond CZ7YT=RR -6 basis points to +78bps over bmk* 10-yr T-bond CZ9YT=RR -1 basis points to +133bps over bmk*

Polish treasury bonds

2-yr T-bond PL2YT=RR -2 basis points to +395bps over bmk*

5-yr T-bond PL5YT=RR -2 basis points to +362bps over bmk*

10-yr T-bond PL10YT=RR -1 basis points to +314bps over bmk*

Hungarian treasury bonds 3-yr T-bond HU3YT=RR -4 basis points to +639bps over bmk* 5-yr T-bond HU5YT=RR -4 basis points to +606bps over bmk*

10-yr T-bond HU10YT=RR +6 basis points to +560bps over bmk*

*Benchmark is German bond equivalent.

All data taken from Reuters at 1641 CET.

Currency percent change calculated from the daily domestic

close at 1600 GMT.

(Reporting by Reuters bureaux; Writing by Karolina Slowikowska and Sandor Peto; Editing by Anthony Barker)

((karolina.slowikowska@thomsonreuters.com)(+ 48 22 653 97 25)(Reuters Messaging: karolina.slowikowska.thomsonreuters.com@reuters.net))