CEE MARKETS-Forint underperforms as S&P cuts Hungary's rating outlook to negative

BUDAPEST, Aug 15 (Reuters) - The forint eased on Monday after S&P cut Hungary's credit rating outlook to negative from stable, citing risks to European Union funding and energy supply. The ratings agency said late on Friday that external risks, including potential cuts to EU funds and reduced gas flows, could weigh on Hungary's growth prospects, already pressured by surging inflation and a fiscal adjustment to rein in the budget deficit. S&P said rising wage and price inflation, exchange rate volatility and upward pressure on borrowing costs could narrow the government's policy flexibility. "The forint is weakening on one hand due to a retreat in the euro, as well as S&P changing the credit rating outlook to negative from stable so far, while affirming the BBB rating," analysts at Hungarian Bankholding said in a note. At 0741 GMT, the Hungarian forint, central Europe's worst-performing unit with a 6.5% loss for the year, was down 0.3% at 394.85 versus the euro, underperforming its regional peers. Markets in Poland and Romania were closed for a holiday. The forint has been pressured by Hungary's row with the EU over democratic standards, which has led to a freeze in pandemic recovery funding, as well as the country's high budget deficit and special taxes hitting foreign investors. "This step is a slightly negative surprise as several weeks ago Fitch left both its rating and the outlook unchanged," economists at brokerage Erste Investment said in a note. "However, these vulnernabilities and fiscal problems were already known, and it was likely that they would have consequences," the analysts said, but added that the market impact would probably be limited. CEE SNAPSHO AT MARKETS T 0941 CET CURRENC IES Latest Previou Daily Change s bid close change in 2022 EURCZK Czech EURHUF Hungary 0 0 EURHRK Croatian EURRSD Serbian 0 0 Note: calculated from 1800 daily CET change Latest Previou Daily Change s close change in 2022 .PX Prague 1255.81 1261.73 -0.47% N/A 00 .BUX Budapest 43584.5 43662.9 -0.18% -14.07% 0 5 .SBITO Ljubljan <.SBITO 1172.97 1173.79 -0.07% -6.57% P a P> .CRBEX Zagreb <.CRBEX 2006.09 2006.09 +0.00% -3.52% > .BELEX Belgrade <.BELEX 845.94 845.94 +0.00% +3.07% 15 15> .SOFIX Sofia <.SOFIX 618.85 619.18 -0.05% -2.65% > Yield Yield Spread Daily (bid) change vs Bund change in Czech spread Republic CZ2YT= 2-year s CZ5YT= 5-year s CZ10YT s Poland PL2YT= 2-year s PL5YT= 5-year s PL10YT s FORWARD 3x6 6x9 9x12 3M interba nk Czech Hungary Poland Note: are for ask FRA prices quotes ******************************************** ****************** (Reporting by Gergely Szakacs; Editing by Rashmi Aich)