* PM: may return to market financing if mood stays benign
* IMF signalled ready to extend agreement if needed - PM
* C. bank: market mood needs to firm before any rate cuts
* Recession seen bottoming out only in Q3 - cbanker
(Combines stories)
By Krisztina Than and Gergely Szakacs
BUDAPEST, June 9 (Reuters) - Hungary may not need to spend all of its IMF loan if global sentiment improves in a lasting way but recession has not bottomed out yet and caution is still warranted in rate policy, top officials said on Tuesday.
Hungary secured a $25.1 billion International Monetary Fund-led rescue package last October to avert financial meltdown and mostly finances its expiring and new debt using the IMF money. Its forint currency remains highly volatile, even though it has firmed 13 percent in the past three months.
Prime Minister Gordon Bajnai, whose minority government took office only two months ago and was crushed in Sunday's European parliament vote, said on Tuesday Hungary may return to market financing if the improvement in global market mood is lasting.
Bajnai also welcomed the gains by the forint, which on Tuesday firmed by over two percent against the euro to trade around 281, saying the currency moved "in a much more comforting range" than two months ago. In early March the forint hit all-time lows past 317 versus the euro.
The forint's strength defied data showing the economy contracted by an annual 6.7 percent in the first quarter, more than a preliminary estimate for 6.4 percent.
"If this improvement (in sentiment) proves lasting, Hungary will have a realistic chance to finance itself from the market," Bajnai told a business forum. "In this case, we may not need to extend our financing agreements with the IMF and the EU."
He added the IMF had given a general indication that if the market improvement is not lasting, it would be ready to talk about extending the loan agreement, which expires in March 2010.
Hungary had to suspend bond issuance after last October's crisis and has restarted domestic bond auctions only cautiously earlier this year. Officials recently said the country was eyeing a potential eurobond issue, after other countries in the region had successfully tapped international markets.
Central bank Deputy Governor Ferenc Karvalits told Reuters on Tuesday the bank would need clear evidence that the recent improvement in market mood is lasting before it could start cutting interest rates.
"We need robust evidence that these changes (in investor sentiment) became permanent before we can change the track of monetary policy," Karvalits said in an interview.
Analysts said the comments suggested the bank would be very cautious in rate policy.
"We think that the comments are particularly important as euro/forint has today passed the level (283) where the NBH (central bank) last time cut its rates in January. The comments suggest that this time around the NBH will want to see a more meaningfully stronger forint before cutting rates again," said Gyula Toth, at Unicredit.
The head of the AKK official debt agency, Ferenc Szarvas, said on Tuesday Hungary would seek to return to full market financing as soon as possible but would only gradually increase bond issuance and remain opportunistic in debt issues.
GROWTH SEEN BOTTOMING OUT
While sentiment in markets has improved, reflected in the currency's gains, Hungary's economy will need time to get out of its worst recession for almost two decades.
The first quarter fall in GDP, the biggest since the early 1990s, was mainly caused by a slump in industrial production as the global crisis cut demand for Hungary's exports while domestic consumption and investments also fell.
However Hungary's trade balance improved further as imports plunged, posting a trade surplus of 429.7 million euros in April after a surplus of 502.6 million in March.
Karvalits said he expected Hungary's economy to continue shrinking this year and growth would bottom out in the third quarter, when it could be around a negative 7 percent.
Both the central bank and the government expect the economy to shrink by 6.7 percent in all of 2009, but Bajnai said on Tuesday it could grow by 3.6-3.7 percent in 2011.
(Writing by Krisztina Than and Balazs Koranyi; Additional reporting by Sandor Peto; Editing by Ruth Pitchford)