CEE MARKETS 3-Rally on Polish bonds continues, CZK recoups losses

* Polish 5-yr bond yields at record low

* Czech c.bank governor says bank would intervene if needed

* Romania sells planned 250 mln lei in 3-yr bonds

(Updates throughout)

By Jason Hovet and Dagmara Leszkowicz

PRAGUE/WARSAW, Oct 11 (Reuters) - Polish 5-year bonds hit record lows on Thursday on expectations the country's central bank will soon cut borrowing costs, while the Czech crown recouped early losses tracking a stronger euro.

Earlier, the crown fell after central bank governor Miroslav Singer said the bank may intervene to weaken the currency if there was a risk of long-term deflation pressure.

Currencies across the region were mostly firmer in afternoon trade though traders said worries over Spain persist.

Expectations of lower interest rates in Hungary and Poland are pointing to weaker currencies in those regions and bond yields are near record lows in Poland and the Czech Republic.

"Rally on Polish bonds continues and every single effort of setting against the trend ends up badly," said Bartlomiej Wit, chief fixed income dealer at ING Bank Slaski.

By 1316 GMT the crown , the Polish zloty and Hungary's forint each added some 0.2 percent to the euro while Romania's leu edged some 0.2 percent lower.

Minutes from the Czech 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 fighting to get out of or avoid recession. The export-driven region is also struggling with slowing trade with the euro zone.

In Poland, a speech by Prime Minister Donald Tusk on Friday was keenly awaited, as he is expected to announce some measures to try to stimulate growth.

In Hungary, the forint was steady, shrugging off data showing the headline inflation rate jumped to 6.6 percent, the highest in over four years. Hungary has cut its interest rates, the highest in the European Union, for two months in a row.

Hungary 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."

Romania sold a planned 250 million lei in three-year treasury bonds, with the average accepted yield some 26 basis points lower compared to the level accepted at the last tender of the paper in February.

--------------------------MARKET SNAPSHOT-------------------- Currency Latest Previous Local Local close currency currency change change today in 2012 Czech crown 24.855 24.908 +0.21% +2.78% Polish zloty 4.088 4.095 +0.17% +9.21% Hungarian forint 281.75 282.35 +0.21% +11.66% Croatian kuna 7.52 7.469 -0.68% -0.06% Romanian leu 4.567 4.56 -0.15% -5.39% Serbian dinar 113.5 113.6 +0.09% -5.77% Yield Spreads Czech treasury bonds 2-yr T-bond CZ2YT=RR 0 basis points to 45bps over bmk* 7-yr T-bond CZ6YT=RR +4 basis points to +76bps over bmk* 10-yr T-bond CZ10YT=RR +5 basis points to +86bps over bmk* Polish treasury bonds 2-yr T-bond PL2YT=RR +1 basis points to +394bps over bmk* 5-yr T-bond PL5YT=RR -2 basis points to +359bps over bmk* 10-yr T-bond PL10YT=RR -5 basis points to +305bps over bmk*

Hungarian treasury bonds

3-yr T-bond HU3YT=RR -7 basis points to +631bps over bmk* 5-yr T-bond HU5YT=RR -4 basis points to +602bps over bmk* 10-yr T-bond HU10YT=RR -4 basis points to +555bps over bmk* *Benchmark is German bond equivalent. All data taken from Reuters at 1516 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 Official rates Emerging Diary Top events Diaries Diaries Index

(Reporting by Reuters bureaus; Editing by Elaine Hardcastle)

((dagmara.leszkowicz@thomsonreuters.com)(+48 22 653 97 18)(Reuters Messaging: dagmara.leszkowicz.reuters.com@reuters.net))