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CEE MARKETS-Leu regains some ground, but political crisis weighs

BUDAPEST/BUCHAREST, June 23 (Reuters) - The Romanian leu regained some ground and stabilized on Friday after the ruling Social Democrats toppled their prime minister this week and now plan to form a new government. The ruling party will propose a new prime minister to the president on Monday and, if he endorses the candidate, a new government could be formed within days, reducing political uncertainty. If President Klaus Iohannis, a centrist, rejects the new - as yet unknown - candidate, more instability and prolonged policy gridlock could follow, analysts said. This could boost volatility in local markets and weigh on the leu. On Friday the leu firmed 0.2 percent to trade at around 4.57 to the euro, but was still hovering around its weakest levels since 2012 of 4.599 hit earlier this week. "EUR/RON hovers at elevated levels not seen since 2012 on political uncertainty and the concerns regarding fiscal discipline," Raiffeisen said in a note. "With consultations starting on Monday to form a new government and with the uncertainty how the President could react to any nominee, the leu is expected to remain volatile over the coming week." Prime Minister Sorin Grindeanu fell in a no-confidence vote initiated by his own party, which is controlled by political adversary Liviu Dragnea. Dragnea is expected to come up with a new candidate by Monday in time for Iohannis to consider his choice. Iohannis has said he will only approve a candidate who has a clean criminal record - something that prevents Dragnea, who has a conviction for vote rigging, from taking the top job himself. Other currencies in the region moved little. "The sell-off of the Polish currency, which had been seen since the start of the week was halted on Thursday. The zloty showed some gains against the euro and the dollar," BZ WBK analysts in a note. "While in the morning EURPLN went above 4.26, another positive monthly data on budget performance and a successful switch auction helped the zloty to turn the tide." Poland posted the smallest central budget deficit in at least 18 years in the first five months of 2017 as value added tax (VAT) revenue jumped by a nearly a third compared to the previous year, the finance ministry said on Thursday. 1/8nL8N1JJ3TQ 3/8 Stocks around the region opened in the black, but were moderately in negative territory by around 0829 GMT.

CEE MARKETS SNAPSHOT AT 0944 CET

CURRENCIES

Latest Previou Daily Change

s

bid close change in 2017 Czech crown 26.3120 26.3010 -0.04% 2.64% Hungary 309.3600 309.420 +0.02% -0.17% forint 0 Polish zloty 4.2430 4.2442 +0.03% 3.79% Romanian leu 4.5675 4.5780 +0.23% -0.71% Croatian 7.4140 7.4181 +0.06% 1.90%

kuna

Serbian 121.5400 121.710 +0.14% 1.49% dinar 0 Note: daily calculated previous close 1800 change from at CET

STOCKS

Latest Previou Daily Change

s

close change in 2017 Prague 988.21 988.30 -0.01% +7.23% Budapest 35809.99 35779.2 +0.09% +11.90 7 % Warsaw 2309.75 2308.16 +0.07% +18.58

%

Bucharest 8354.52 8336.85 +0.21% +17.92

%

Ljubljana 792.93 791.80 +0.14% +10.50

%

Zagreb 1860.12 1856.47 +0.20% -6.75% Belgrade 0.00 706.37 +0.00% -100.00

%

Sofia 684.61 683.59 +0.15% +16.74

% BONDS

Yield Yield Spread Daily (bid) change vs Bund change

in

Czech spread

Republic

2-year 0.049 -0.024 +066bp -4bps

s

5-year 0.032 0 +041bp +0bps

s

10-year 0.93 0 +067bp +0bps

s Poland

2-year 1.939 -0.07 +255bp -8bps

s

5-year 2.612 0.003 +299bp +0bps

s

10-year 3.201 -0.002 +294bp -1bps

s

FORWARD RATE AGREEMENT 3x6 6x9 9x12 3M

interba nk

Czech Rep <PR 0.34 0.41 0.49 0

IBOR=>

Hungary <BU 0.185 0.2 0.23 0.15

BOR=>

Poland <WI 1.752 1.763 1.792 1.73

BOR=>

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

(Additional reporting by Bartosz Chmielewski; Editing by Richard Balmforth)