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CEE MARKETS-Zloty firms on hope EU sanction on Poland is not imminent

* EU seen threatening Poland, but not launching sanctions yet

* Zloty firm, but could remain shaky over judicial reform plans

* Fed watched, hawkish comments could weaken CEE fx, bonds

BUDAPEST, July 26 (Reuters) - The zloty firmed slightly on Wednesday on expectations that the European Union's executive will not launch new legal proceedings against Poland over a law allowing the government to appoint judges. Trading at 4.2548 against the euro at 0803 GMT, the zloty was up 0.1 percent, while other Central European currencies were flat or strengthened slightly. But the zloty remained near the 3-month lows it hit on Monday as a result of concerns over judicial reforms, the street protests they triggered, and the threat of EU sanctions. Its weakness indicates that investors remain on edge. Their concerns abated somewhat on Monday, after Polish President Andrzej Duda said he would veto two of the three judiciary reform bills. But the third bill that he ratified on Tuesday allows the justice minister to hire and fire the senior judges who head ordinary courts and the government has not dropped its plan to replace Supreme Court judges. One EU official who declined to be named said the EU's executive on Wednesday would threaten Poland with rapid legal consequences if it begins dismissing judges. The European Commission is unlikely to launch a new infringement procedure against Poland now, but could empower its president, Jean-Claude Juncker, to launch legal cases if the Polish presidential veto is reversed. "The standoff with the European Commission on the judicial reforms is likely to continue," Raiffeisen analyst Wolfgang Ernst said in a note. "For the zloty this uncertainty should contribute to a prolonged phase of elevated volatility with EUR/PLN expected to remain in a basic 4.20-4.30 range for the time being," he added. If inflation rises and expectations for Polish central bank interest rate hikes return, the zloty can still firm in the next weeks, analysts said. At a meeting on Aug. 3, Czechs may become the first major central bank in the region to lift interest rates for more than five years. The Czech crown has firmed almost 4 percent the euro since the bank scrapped a cap on it at 27 against the euro in April, but it has got stuck on the weak side of the 26 level. Investors will also closely watch comments from the Federal Reserve's meeting on Wednesday. Any reference to upcoming cuts in the Fed's balance sheet could lead to a weakening of currencies and bonds in Central Europe, traders said. "The forint, however, looks bullet-proof," one Budapest-based trader said, adding that the inflow of funds from the EU and a strong trade surplus buoyed the currency.

CEE MARKETS SNAPSH AT 1003 CET

OT CURRENCIES

Latest Previo Daily Change

us

bid close change in

2017

Czech crown 26.014 26.015 +0.01 3.82% 0 5 % Hungary 305.55 305.45 -0.03% 1.07% forint 00 00 Polish zloty 4.2548 4.2578 +0.07 3.50%

%

Romanian leu 4.5600 4.5651 +0.11 -0.55%

%

Croatian kuna 7.4155 7.4145 -0.01% 1.88% Serbian dinar 120.63 120.76 +0.11 2.25% 00 00 % Note: daily calculated previo close 1800 change from us at CET

STOCKS

Latest Previo Daily Change

us

close change in

2017

Prague 1013.5 1015.1 -0.16% +9.97 1 3 % Budapest 35301. 35286. +0.04 +10.3 12 14 % 1% Warsaw 2352.9 2341.3 +0.50 +20.8 9 6 % 0% Bucharest 8345.4 8328.7 +0.20 +17.7 1 3 % 9% Ljubljana 808.57 808.80 -0.03% +12.6

8%

Zagreb 1875.4 1879.3 -0.21% -5.99% 4 9 Belgrade 716.78 718.50 -0.24% -0.08% Sofia 711.76 711.77 +0.00 +21.3 % 7%

BONDS

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

Republic

2-year -0.025 0 +066b +1bps

ps

5-year 0.07 0 +023b +1bps

ps

10-year 0.964 0.012 +041b +3bps

ps Poland

2-year 1.851 -0.002 +253b +1bps

ps

5-year 2.659 -0.013 +281b +0bps

ps

10-year 3.315 -0.005 +276b +1bps

ps

FORWARD RATE AGREEMENT 3x6 6x9 9x12 3M

interb ank

Czech Rep <PR 0.52 0.66 0.75 0

IBOR=>

Hungary <BU 0.21 0.23 0.27 0.15

BOR=>

Poland <WI 1.78 1.781 1.85 1.73

BOR=>

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

(Reporting by Sandor Peto ")