By Jason Hovet

PRAGUE, March 22 (Reuters) -Central Europe's markets cooled on Wednesday, with global investors' eyes turned to a U.S. Federal Reserve meeting later in the day to assess the dollar's strength, while bond yields in the region ticked higher.

Market sentiment has improved since the rescue of Credit Suisse by Swiss rival UBS jolted investors at the beginning of the week, causing Hungary's forint to sink to an 11-week low and stocks to sell off, especially among banking shares.

Shares were mixed on Wednesday, with Warsaw .WIG20 and Prague .PX inching down.

Currencies were also mostly softer, led by the forint's 0.35% drop on the day. The Hungarian currency has swung from as strong as 380 to the euro last week to beyond the sensitive 400 level on Monday, settling at around 390 in Wednesday trade.

The Polish zloty EURPLN= was also halfway from its trading range seen since last week, steady on the day at 4.685 to the euro.

The U.S. Fed's committee(FOMC) will be weighing still high inflation with the recent bout of banking market turmoil caused by Credit Suisse and the implosion of California-based Silicon Valley Bank.

"Market participants' dovish expectations will be confronted with the latest forecasts of FOMC members regarding the target level of the federal funds rate at the end of this and next year," analysts at Polish bank PKO said.

"They may turn out to be much more balanced than the market expects, and the possible lack of a clear valuation of interest rate cuts this year in the dot plot would favor the strengthening of the dollar against high-yielding EM currencies, including the zloty."

Signals of a possible U.S. rate cut this year would boost the zloty and others in the region, PKO said.

The latest bout of market turmoil undid some of the currency gains seen already this year, with the forint sitting around a 10-month high earlier in March and the crown at an almost 15-year peak.

Bond yields have also dropped but ticked higher on Wednesday.

The Czech Finance Ministry was offering up to 9 billion crowns in three bonds at an auction in a test of appetite after market jitters. The ministry has slowed its borrowing pace although has compensated with switch auctions in secondary markets, which have totalled 29.5 billion crowns so far in 2023.

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Reporting by Jason Hovet in Prague, Alan Charlish in Warsaw and Krisztina Than in Budapest; Editing by Maju Samuel

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