CEE MARKETS-Prospect of EU funds boosts Hungary's forint

(Adds senior officials in paragraphs 2-3, economist in 5-6, updates prices and table) By Jason Hovet and Boldizsar Gyori PRAGUE, Oct 3 (Reuters) - The forint traded close to a more than one-week high on Tuesday, boosted by the possibility of the European Union freeing up some funding for Hungary that has been locked in dispute. The EU is considering unlocking billions of euros for Hungary that were frozen over rule-of-law concerns as it seeks to win Budapest's approval for aid to Ukraine, including a start to membership talks for Kyiv, according to senior officials. EU officials told Reuters that laws passed by Hungary this summer to increase judicial independence had brought a deal closer on unfreezing part of some 22 billion euros ($23 billion)in economic development aid. The story was first reported by the Financial Times on Tuesday, according to which the European Commission could unfreeze about 13 billion euros for Hungary before the end of November. The dispute has been a weight on the forint and the flow of funds could give the currency a boost. "Markets would react positively to the news of the EU unblocking the frozen funds, as we saw this morning...," Peter Virovacz, senior economist at ING, said. "However, serious firming will come only after the market is convinced that the funds are unlocked." The forint was up 0.5% at 386.4 to the euro at 1147 GMT, off a session high of 385.70, which was its highest level since Sept. 22. Hungarian Prime Minister Viktor Orban last month called on the Commission to release the billions of euros in EU funds, saying they would help "smooth out" the budget. Hungary's budget deficit is overshooting its initially planned target as tax revenues fall and spending on pensions and energy subsidies rise. On Monday, the government raised the 2023 deficit target to 5.2% of economic output, from 3.9%. The economy ministry also called on commercial banks to impose an interest rate cap on new loans for companies and households below the central bank's 13% benchmark rate. In other trading, the Czech crown recovered from morning weakness, trading almost flat at 24.4350 after two days of losses. Poland's zloty eased 0.2% to 4.621 to the euro before a Wednesday central bank rate decision that is expected to produce a second straight interest rate cut, albeit smaller than a surprise 75 basis point reduction last month. CEE SNAPSHOT AT MARKETS 1347 CET CURRENCI ES Latest Previous Daily Change bid close change in 2023 Czech 24.4350 24.4250 -0.04% -1.13% crown Hungary 386.4000 388.5000 +0.54% +3.37% forint Polish 4.6210 4.6135 -0.16% +1.48% zloty Romanian 4.9755 4.9749 -0.01% -0.66% leu Serbian 117.1400 117.1700 +0.03% +0.14% dinar Note: calculated from 1800 CET daily change Latest Previous Daily Change close change in 2023 Prague 1342.68 1346.780 -0.30% +11.73% 0 Budapest 56101.63 55649.46 +0.81% +28.10% Warsaw 1866.25 1873.32 -0.38% +4.14% Bucharest 14319.75 14368.36 -0.34% +22.77% Spread Daily vs Bund change in Czech spread Republic 2-year 5-year 10-year Poland 2-year 5-year 10-year FORWARD 3x6 6x9 9x12 3M interban k Czech Rep < 6.72 5.84 5.00 7.09 PRIBOR=> Hungary < 10.80 9.29 8.24 12.22 BUBOR=> Poland < 4.82 4.30 4.11 5.74 WIBOR=> Note: FRA are for ask prices quotes ************************************************** ************ ($1 = 0.9542 euros) (Reporting by Boldizsar Gyori in Budapest, Jason Hovet in Prague and Anna Wlodarczak-Semczuk and Karol Badohal in Warsaw; Editing by Bernadette Baum and Mark Potter)