BUDAPEST (Reuters) - Hungary's government scrambled to allay concerns on Friday that negotiations with the International Monetary Fund had broken down after a website said the Fund would not restart aid talks unless Budapest changed its economic approach.

The report on Origo.hu cited unnamed sources in Prime Minister Viktor Orban's administration as saying the IMF was upset with a local media campaign in which the government has expressed resistance to any IMF-prescribed austerity.

The report knocked the forint currency 1 percent lower against the euro and pushed bond yields as much as 17 basis points higher on Friday.

But the minister in charge of talks with the Fund, Mihaly Varga, quickly said that the talks had not broken down.

"In July we managed to begin the talks. Since then, we have been in continuous and sustained contact," Varga told Reuters by telephone.

"This is a continuous negotiation methodology, which has physical forms, but can also take place over the phone or in emails, so these have not broken down at all."

The IMF was not immediately available for comment.

Investors, emboldened by the so-called "wall of money" created by quantitative easing in the United States and the European Central Bank's plan to assist troubled euro zone states by buying bonds, have given Budapest the benefit of the doubt, pushing the forint and bonds to record highs in recent weeks.

Orban said earlier this month that Hungary was on the brink of signing a deal, although no new date for talks has been set.

Analysts, however, have been more cautious, saying that Orban may be trying to keep investors on side - and keep Hungarian bond yields from rising to unsustainable levels - by expressing willingness to sign a deal even if he has no intention of doing so.

The government walked away from a previous round of negotiations with the Fund just after taking power two years ago and has drawn a wide range of international criticism for its policies since. Its efforts to sit down with the IMF took months to generate actual talks in a saga that now stretches back almost a year.

(Reporting by Gergely Szakacs and Sandor Peto, writing by Michael Winfrey; editing by Patrick Graham)




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