* Czech c.bank governor says bank would intervene if needed
* Polish five-year bond yields at record low
* Hungary inflation rate hits highest since July 2008
* Spain, euro zone worries weigh on emerging Europe assets
By Jason Hovet
PRAGUE, Oct 11 (Reuters) - The crown led losses in emerging Europe on Thursday after the Czech central bank governor said policymakers stood ready to intervene to weaken the currency if needed.
Expectations of interest rate cuts sent the yield on five-year Polish bonds hit an all-time low, but worries over the euro zone dampened appetite for central European currencies after Standard & Poor's cut Spain's credit rating to just above junk.
Czech central bank chief Miroslav Singer said the bank could act against the strong crown if there was a risk of long-term deflation pressures, following up on comments he made last month when the bank cut interest rates to near zero.
fell as much as half a percent and was bid 0.2 percent lower at 24.95 to the euro at 0948 GMT, wiping out gains it made in the previous session. Other currencies in the region were a touch lower.
"Singer's comments are behind (the weakening). There is nothing new and nothing too exciting, but some people are still probably expecting interventions soon," a Prague dealer said.
"The comments are pointing out that they don't want to act here (at this level) and that there is no consensus in the board on when and where to act."
Minutes from the central bank's Sept. 27 meeting, released last week, showed that the governing board was still divided over whether to intervene against the crown and employ more monetary easing to prop up the recession-hit economy.
Years of austerity are taking a toll on the Czech economy and other economies in the region are also fighting to get out of or avoid recession. The export-driven region is also now struggling with slowing trade with the euro zone, whose debt crisis is in a third year.
RATE CUTS AHEAD?
Expectations of lower interest rates in Hungary and Poland are pointing to weaker currencies in the region and bond yields are near record lows in Poland and the Czech Republic.
Polish bond yields fell by as much as 7 basis points, with five-year yields at an all-time low of 4.1 percent and the 10-year bond at 4.57 percent, its lowest since 2005.
was 0.1 percent lower around 4.1 to the euro. Prime Minister Donald Tusk talked down the currency on Wednesday, saying a rate of 4.5 would be good for Poland and its exporters.
Markets will focus on a speech by Tusk on Friday, when he is expected to announce some measures to try to stimulate growth, as well as limited reforms aimed at making public finances more streamlined.
"Foreign investors simply know that our economy is slowing, incoming data are weaker and weaker, so interest rates will simply have to come down," said one Warsaw-based fixed-income dealer.
shrugged off data showing the headline Hungarian inflation rate jumped to 6.6 percent, the highest in over four years, and was steady on the day. Hungary has cut its interest rates, the highest in the European Union, for the past two months in a row.
It sold nearly 1.5 times as much 12-month paper as originally planned and average yields fell 23 basis points from the previous auction two weeks ago. Yields on the secondary market also fell, and the government plans to launch a new three-year euro-denominated bond.
Budapest, which is still wrangling with the International Monetary Fund over a financing deal analysts say is needed to bring its borrowing costs back down to manageable levels, has not tapped international markets so far this year.
"Regardless of the high inflation data, which surpassed already high market projections, expectations for interest rate cuts have not diminished," said a Budapest fixed income trader.
"If Hungary wants, it can come out with a euro bond, and if storm clouds are gathering, there is still the IMF as an alternative."
fell 0.2 percent and Bucharest
stocks were dragged down by Fondul Proprietatea
which lost more than 3 percent due to a court ruling which raised doubts over management of the fund.
Currency Latest Previous Local Local close currency currency change change today in 2012 Czech crown
24.95 24.908 -0.17% +2.38%
4.098 4.095 -0.07% +8.95%
282.24 282.35 +0.04% +11.47%
7.513 7.469 -0.59% +0.04%
Romanian leu 4.57 4.56 -0.22% -5.45% Serbian dinar 114.14 113.6 -0.47% -6.3% Yield Spreads Czech treasury bonds 2-yr T-bond CZ2YT=RR -13 basis points to 32bps over bmk* 7-yr T-bond CZ6YT=RR -3 basis points to +70bps over bmk* 10-yr T-bond CZ10YT=RR 0 basis points to +81bps over bmk* Polish treasury bonds 2-yr T-bond PL2YT=RR 0 basis points to +394bps over bmk* 5-yr T-bond PL5YT=RR -3 basis points to +359bps over bmk* 10-yr T-bond PL10YT=RR -3 basis points to +310bps over bmk* Hungarian treasury bonds 3-yr T-bond HU3YT=RR +1 basis points to +639bps over bmk* 5-yr T-bond HU5YT=RR +3 basis points to +613bps over bmk*
10-yr T-bond HU10YT=RR +4 basis points to +561bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1148 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus)
Keywords: MARKETS EASTEUROPE/