CEE MARKETS-Zloty falls for fourth day as uncertainty of Middle East conflict drags FX

WARSAW, March 27 (Reuters) - Poland's zloty fell for a fourth straight day and Hungary's forint retreated further from a two-week high on Friday, as central European currencies slipped, with volatility stemming from Middle East tensions continued to weigh on risk appetite.

Investors sought safety amid the persisting Iran war that initiated with U.S. and Israeli air strikes this month, with mounting doubts over any path to de-escalation. The dollar hovered near multi-month peaks, dragging emerging market assets lower.

"Barring some conciliatory words from Iran today – which seems highly unlikely – we expect the dollar to stay bid and risk assets to remain vulnerable," ING analysts said in a note.

In Hungary, the forint EURHUF= fell 0.4% to 389.70 by 0915 GMT, down a second day after firming to as much as 385.75 on Wednesday when the Hungarian central bank decided to leave interest rates on hold.

POLISH RATE CUT EXPECTATIONS FADING

The Polish zloty EURPLN= eased 0.2% to 4.2860 per euro, approaching a two-week low beyond 4.29 hit at the start of the week.

"Donald Trump's decision last night to extend the ultimatum for Iran (for striking Iran's energy plants) by another 10 days... essentially means 'nothing'. The situation remains tense," brokerage DM BOS' chief currency analyst Marek Rogalski wrote in a note.

According to analysts at Poland's state-owned development bank BGK, the majority of negative external impulses of the past weeks were being absorbed by the interest rate and debt markets.

Hopes faded for more interest rate cuts in Poland - which has been in easing mode since last year - with respondents in a Reuters poll not expecting any rate reductions by Poland's central bank through the third quarter.

Market bets on more interest rate cuts in Poland have reversed entirely, with 9x12 forward rate agreements now at 4.61 versus 3.39 in late February. The National Bank of Poland cut its base rate in early March to 3.75%.

The Czech crown EURCZK= softened 0.1% to 24.5250, slipping back toward six-month lows beyond the psychological 24.50 per euro level, weighed down by the firming dollar.

It has largely shaken off the impact of the Czech central bank's policy minutes, released on Thursday, which showed more vigilance toward any price shocks from the Iran war.

"Given the prolongation of the conflict, the probability and intensity of spillover of more expensive energy into other price groups may increase," Komercni Banka analysts said. Money markets are pricing in up to 75 bps in rate hikes in the next 12 months.