* Zloty seen firming 5-6 percent in next 12 months
* Crown seen extending gains in 2011, leu to rebound
* Forint to underperform, though seen firming 2.5 percent
By Sandor Peto
BUDAPEST, Dec 2 (Reuters) - Economic recovery will lift currencies in the European Union's east in 2011 but the past few weeks' falls can resume any time if the euro zone debt crisis escalates, analysts in a monthly Reuters poll said.
The Nov. 29-Dec. 1 poll which had 37 respondents projected that the Polish zloty would firm 5.5 percent from its Wednesday close to 3.8 against the euro in the next 12 months, adding to its 2.5 percent gain posted so far this year.
The Czech crown, the region's top performer in 2010 with gains over 5 percent, is expected to strengthen further by 3.2 percent to 24.2. The Romanian leu is also seen firming 3.2 percent to 4.16 after shedding more than one percent this year.
But a projected 2.5 percent rise of Hungary's forint would offset only part of the 3 percent loss suffered in 2010 amid concerns about how Budapest is dealing with its budget deficit.
The units are all expected to firm in the next few weeks except for the forint, which is seen closing the year broadly unchanged from Wednesday's closing level.
The currencies underperformed forecasts this year as investors' hunger for yield soured over the Greek debt crisis in the summer and Ireland's woes in the past weeks.
Fears that Portugal and Spain may also fall prey to the crisis weigh on the outlook of the EU's emerging markets.
But analysts have so far maintained their forecasts for a firming of their currencies, putting an expected economic recovery and monetary tightening in the region in the balance.
EYES SHARPENED TO FISCAL RISKS
The recovery has made a strong start in Poland and the Czech Republic, though it remains sluggish in Hungary.
Romania which is carrying out fiscal austerity measures is still in recession but its debt is well below that of Hungary whose government has often confounded markets in the past months with unorthodox economic policy measures.
The median 12-month forecasts improved to 24.20 per euro for the Czech crown from 24.25 in a poll a month ago, to 4.16 from 4.19 for the Romanian leu, remained flat at 3.8 for the zloty, but Hungary's forint is seen weaker at 272.50 than the previous forecast of 270.
Hungary is expected to cut its budget deficit to one of the lowest levels in the EU, below 3 percent of GDP next year.
But investors remain concerned over its medium-term fiscal sustainability and debt ratings as one-off measures reduce the budget gap, including special taxes on big firms and a plan to spend savings to be taken over by the state from pension funds.
"There is a big hole in the budget looking ahead to 2013-2014," said Zsolt Kondrat of MKB Bank. "The government will need to do something and I expect that they will do something... there will be some kind of a reform, spending cuts."
Early this week Hungary's central bank became the first in the region since the 2008 global crisis to increase interest rates, but a central bank law amendment to put government appointees in the rate-setting body has triggered concerns.
Poland may be the first to follow Hungary's rate increase. The zloty's prospects are also brightened by the country's robust growth, privatisation revenue inflows and the possible conversion of funds from the EU in the zloty market.
But even analysts' favourite, the zloty, is vulnerable to sentiment shifts over the euro zone crisis, which has made investors more sensitive to any fiscal weakness in Europe.
"Poland, despite its growth, has one of the largest deficits in CEE (Central Europe)," Nomura said in a note dated Dec. 1.
"Although investors still hope fiscal consolidation will take place after next October's elections, we believe a lack of momentum could lead to a downgrade and possible investor flight with currency implications," it said.
The crown, the region's safe haven currency has also suffered from the concerns over the euro zone in the past weeks.
"The focus will most likely remain on the euro zone in the coming days and even weeks and will lead the way for EUR/CZK development," said Helena Horska of Raiffeisenbank in Prague.
For the leu the fragility of the Romanian government which needs to implement further budget cuts remains a key risk.
"Uncertainty around the budget law for 2011 with negative implications for the (country's) IMF (loan) deal are likely to weigh on the RON (leu) for the near-term," said Nicolaie Alexandru-Chidesciuc of ING Bank in Bucharest.
(Reporting by Sandor Peto; Editing by Toby Chopra)