CEE MARKETS-Forint up as rate pause expected and Polish bonds shrug off rating action

PRAGUE, Sept 21 (Reuters) - Hungary's forint edged higher on Monday, holding to the middle of its recent range on the eve of a central bank meeting that is likely to show monetary policy easing has paused, while Polish bond yields showed little response to a Moody's ratings cut.

Central Europe's currencies have mostly weakened due to a stronger U.S. dollar after the Federal Reserve delivered a hawkish interest rate hike.

The forint, though, is a clear outperformer versus peers this year, helped by the pro-European stance of Prime Minister Peter Magyar who took power in May.

The forint had gained 0.2% to 363.74 to the euro by 0752 GMT on Monday.

Although the forint has retreated from a more than four-year high past the 350 per euro level in June, it has settled into the 360 to 370 range since July, largely undented by interest rate cuts during the summer months.

Hungary's central bank is expected to keep its base rate on hold at 5.5% when it meets on Tuesday, pausing its easing campaign, a Reuters poll showed on Friday.

Analysts said the pause would help to give the bank time to assess market reaction as it plans a review of its 3% inflation target.

Other currencies were steady or a touch higher, with the Polish zloty and Czech crown up 0.05-0.1% after touching multi-year and multi-month lows, respectively, this month.

POLISH RATING DOWNGRADE TAKEN

On debt markets, bond yields pushed slightly lower.

The benchmark Polish 10-year bond yield was just off a 2-1/2-year peak, bid at around 6.25%, down 6 basis points on the day as energy markets calmed from steep gains linked to Middle Eastern tension, analysts said.

Credit ratings agency Moody's downgraded Poland's sovereign rating to "A3" from "A2" on Friday, citing sustained deterioration in the country's fiscal strength.

But markets had expected the cut that brought Moody's rating in line with other agencies. Poland expects its government deficit to remain around 7% of gross domestic product next year, well above European Union limits.

"In our view, the reaction of the zloty and domestic bonds is unlikely to be significant, as investors were already aware of the unfavorable trends in public finances," Bank Millennium said.

"Additionally, an A3 rating remains within the investment-grade category, signifying high credit quality."