* Assets retreat as BoE surprises, not cutting rates * Currencies off multi-week highs * Hungarian bond yields rise from all-time lows (Recasts, with BoE rate decision, Hungarian T-bill auction) By Sandor Peto BUDAPEST, July 14 (Reuters) - Central European assets retreated on Thursday after the Bank of England surprised investors by keeping interest rates on hold.
A rate cut in Britain would have left Central Europe's high-yielding assets more attractive.
However, the bank may still ease policy next month to ward off possible recession after Britain voted to leave the European Union.
Central European currencies and stocks lost momentum even before the BoE decision, after days of rises due to Japan's fiscal stimulus plans and expectations that the U.S. Federal Reserve will not rush into rates hikes.
Regional currencies, after an initial firming, retreated from levels at or near multi-week highs.
The forint and the leu eased a shade against the euro by 1355 GMT, and the zloty was steady at 4.413.
Hungarian government bond prices also reversed a rise.
Yields rose by 5 basis points from session lows, which were also all-time lows for 5- and 10-year bonds.
Traders said debt yields were initially pushed lower by Tuesday's news about central bank plans to squeeze out commercial bank money from its 3-month deposits.
The move could mainly increase demand for short-term debt.
An auction of 30 billion forints worth of 12-month Treasury bills attracted bids worth 123 billion forints.
The government lifted its offer by 50 percent, but the average yield on the bills still fell 23 basis points to 0.71 percent.
Hungarian 10-year bonds traded at a yield of 2.78 percent, still down by 6 basis points from Wednesday's fixing.
The corresponding yield in Poland, which holds a much better credit ratings, rose 6 basis point to 2.92 percent.
A Reuters poll of analysts predicted a yield rise to about 3.2 percent in both countries by end-year, tracking a likely increase in U.S. yields.
They said any dip in Hungary's yield below Polish levels could be temporary. Central bank policies support Hungarian bonds, but domestic political risks in Poland may ease.
A key risk is a plan to convert Swiss franc mortgages into zloty partly at the cost of banks. Possible credit rating downgrades also cloud the horizon.
The zloty may retest its recent lows at 4.54 against the euro even though parliament is likely to water down the conversion plan in the end, ING analyst Peter Virovacz said in a note.
The concerns could still make Hungarian 10-year bonds more attractive than Polish peers in the short term, he said.