UPDATE 1-Hungary "not far" from agreement with IMF -PM

* Further progress expected after IMF meetings in Tokyo end

* Forint, CDS, bond yields lower as markets expect deal soon

(Adds detail)

BUDAPEST, Oct 12 (Reuters) - Hungary is close to an agreement with the International Monetary Fund on setting up a financial safety net, Prime Minister Viktor Orban said on Friday.

Central Europe's most indebted nation, which has not tapped international debt markets this year, needs the measure to curb its high borrowing costs and rebuild market confidence hurt by years of unorthodox economic policies.

"There is a good chance. We are not far from a good agreement," Orban told radio station MR1-Kossuth in an interview in response to a question about the prospects of a financing deal Budapest first requested nearly a year ago.

Orban said further progress in the talks could be made after the IMF concludes its annual meetings in Tokyo.

Orban said pressure on Hungary to secure a deal at all costs had abated and confidence in the country had strengthened recently. Some market participants believe Hungary is playing for time in the talks.

Earlier this week Orban said the issue of whether or not Hungary secures an agreement with the IMF and the European Union on a multi-billion euro loan to bolster its shirking economy would be determined by the first quarter of next year.

After a preliminary leg of talks on July, Hungary moved a step closer to an agreement last week by abandoning a planned tax on its central bank and flagging new budget cuts worth 397 billion forints ($1.83 billion) next year to keep its deficit under control.

Market optimism that a deal may be near curbed yields on the government's "junk-rated" bonds below 7 percent on shorter maturities while the cost of insuring Hungary's debt against a default fell to levels last seen in July 2011 this week.

Earlier this week Fitch Ratings warned Hungary not to go without IMF support.

($1 = 217.4959 Hungarian forints)

(Reporting by Gergely Szakacs; Editing by Andrew Heavens)

((gergely.szakacs@thomsonreuters.com)(+36 1 327 4748)(Reuters Messaging: gergely.szakacs.thomsonreuters.com@reuters.net))

Keywords: HUNGARY IMF/