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CEE MARKETS-Warsaw leads stocks rise, Hungarian bonds firm at auction

* Fed comments on rate caution helps CEE assets

* Warsaw leads stock gains, JSW and PGNiG Q1 results help

* Hungarian bond sale draws strong demand on IRS announcement

(Adds Polish central bank governor comments, Hungarian bond auction results) BUDAPEST, May 25 (Reuters) - Warsaw led Central European equities higher on Thursday as emerging market stocks firmed after the U.S. Federal Reserve signalled a cautious approach to rate hikes and Polish energy firms PGNiG and JSW reported strong earnings. The prospect of slower U.S. rate hikes than had recently been expected could trigger a flow of funds from dollar assets into higher-yielding emerging markets, traders sad. The zloty tested 21-month highs against the euro, touching this week's strongest levels at 4.1716. Polish central bank governor Adam Glapinski said the zloty would remain resilient to expected monetary tightening in the U.S. and the euro zone. He said the zloty was at "competitive levels". "Indeed, almost every gauge of real value points to its undervaluation. For these reasons, the zloty will prove resilient to any tapering," the governor said, in a commentary published by the Official Monetary and Financial Institutions Forum. Warsaw's blue-chip stock index jumped almost 1.5 percent at the opening but halved its gains by 1305 GMT, although it was still outperforming its main Western European counterparts. Poland's dominant gas firm PGNiG and JSW, the EU's biggest coking coal producer, reported higher than expected first-quarter earnings. PGN stocks jumped almost 5 percent and JSW firmed 3.7 percent. Budapest's index firmed slightly, but stayed below Monday's record levels as the shares of OTP Bank <OTPB.BU gained 1.1 percent, but drug maker Richter stocks retreated. Hungarian bonds extended their gains, helped by robust demand at Thursday's auctions, where the government sold bonds worth 52 billion forints ($189.54 million), 15 billion forints more than planned. The bonds were sold at average yields below early secondary market levels and retained their price gains in afternoon trade. Demand was partly fuelled by an announcement from the central bank that it would reopen interest rate swaps (IRS) earlier used by commercial banks to hedge their government bond buying. The IRSs which will expire in February 2019 could mainly help the short end of the yield curve, while all the Hungarian bonds on offer could draw healthy demand, traders said. Hungary's 3-year bonds, after heavy oversubscription at the auction, traded at a yield of 0.78 percent, down 6 basis points from Wednesday's fixing. Rate setters told the Reuters Central & Eastern Europe Investment Summit this week that Hungary and Poland would keep monetary policy loose through to 2018, shrugging off rising inflation, while the Czech central bank may be the region's first to tighten later this year. The forint traded at 307.74 against the euro, off the three-month highs reached on Wednesday at 307.16.

CEE MARKETS SNAPSH AT 1505 CET

OT CURRENCIES

Latest Previo Daily Change

us

bid close change in

2017

Czech crown 26.437 26.453 +0.06 2.16% 0 0 % Hungary 307.74 307.81 +0.02 0.35% forint 00 00 % Polish zloty 4.1805 4.1817 +0.03 5.34%

%

Romanian leu 4.5505 4.5496 -0.02% -0.34% Croatian kuna 7.4270 7.4273 +0.00 1.72%

%

Serbian dinar 122.67 122.69 +0.02 0.55% 00 00 % Note: daily calculated previo close 1800 change from us at CET

STOCKS

Latest Previo Daily Change

us

close change in

2017

Prague 1010.7 1010.7 +0.01 +9.68 9 3 % % Budapest 34324. 34251. +0.22 +7.26 89 21 % % Warsaw 2342.0 2324.9 +0.74 +20.2 8 9 % 3% Bucharest 8581.1 8549.0 +0.38 +21.1 7 6 % 2% Ljubljana 791.12 788.54 +0.33 +10.2 % 5% Zagreb 1853.2 1853.2 +0.00 -7.10% 1 6 % Belgrade 736.47 735.64 +0.11 +2.66 % % Sofia 658.37 660.74 -0.36% +12.2

7% BONDS

Yield Yield Spread Daily (bid) change vs change Bund in Czech spread

Republic

2-year -0.098 0.083 +057b +10bp ps s 5-year -0.022 0.023 +034b +6bps

ps

10-year 0.793 -0.054 +042b -2bps

ps Poland

2-year 1.935 -0.008 +261b +1bps

ps

5-year 2.756 -0.017 +312b +2bps

ps

10-year 3.333 -0.002 +296b +3bps

ps

FORWARD RATE AGREEMENT 3x6 6x9 9x12 3M

interb ank

Czech Rep <PR 0.36 0.44 0.52 0

IBOR=>

Hungary <BU 0.19 0.23 0.29 0.15

BOR=>

Poland <WI 1.757 1.78 1.825 1.73

BOR=>

Note: FRA are for ask quotes prices ********************************************************* ****

($1 = 274.3500 forints)

(Additional reporting by Luiza Ilie in Bucharest/Bartosz Chmielewski and Marcin Goettig in Warsaw; Editing by Catherine Evans and Ed Osmond)