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CEE MARKETS-Forint firms in muted reaction to S&P outlook upgrade

* Surprise S&P outlook rise lifts forint, OTP Bank stocks

* Impact is marginal, investors focus on dovish monetary policy

* CEE assets are mixed, London holiday cuts turnover

* Leu rebounds but stays near 5-year low on pension reform fear

BUDAPEST, Aug 28 (Reuters) - The forint firmed slightly on Monday in a cautious reaction to a surprise move by rating agency Standard & Poor's late on Friday to raise the outlook on Hungary's sovereign rating to "positive." While central European currencies were mixed, the forint traded 0.2 percent higher at 304.10 against the euro at 0821 GMT. S&P, after Friday's markets close, reaffirmed Hungary's rating at BBB-, but raised the outlook to positive from stable, citing a better growth and external balance outlook which also continues to improve the financial sector. Analysts said Moody's may also lift its own rating outlook for Hungary to positive in a review due on Oct. 20. However they said any upgrade in Hungary's rating was unlikely to come before parliamentary elections in April 2018. The big breakthrough was last year when the agencies lifted Hungary's ratings back into investment grade, market participants said. With London markets closed due to a holiday, foreign investors mostly stayed off and the full impact of the outlook change will be visible only on Tuesday, they said. "Hungarian (government) bonds are unchanged and a big impact is unlikely, with yields below (better-rated) Poland," one Budapest-based trader said. "The global sentiment looks supportive as neither the Fed or the ECB were giving hawkish signals (at a meeting of central bankers) last week," the trader added. The forint moved closer to the 28-month highs hit last week at 301.72, before a signal for further monetary easing from the National Bank of Hungary knocked the currency down to 305.11. Monday's firming was marginal. The forint got additional help from a weakening of the dollar over the weekend. A dollar sell-off often lifts regional currencies against the euro as well. "If the dollar continues to weaken, to 253 against the forint or even 250, that may lift the euro/forint as well to 302 again," one currency dealer said. At the moment, "the (forint and government bond) market is more focused on potential MNB (central bank) action to soften the HUF (forint)," Raiffeisen analyst Gunter Deuber said in a note. Budapest's main equities index was treading water as the main stocks hovered near technical levels around multi-year highs. OTP Bank hit a new 10-year high at 10,455 forints ($41.03), while oil group MOL retreated from six-year highs. Elsewhere in the region, the leu regained some ground, returning to the firm side of the key 4.6 line against the euro, but stayed near Friday's five-year lows. It fell on Friday after Romania's government said it may downsize private pension fund contributions from next year, which could hurt demand for Romanian assets.

CEE MARKETS SNAPSH AT 1021 CET

OT CURRENCIES

Latest Previo Daily Change

us

bid close change in

2017

Czech crown 26.105 26.096 -0.03% 3.46% 0 5 Hungary 304.10 304.76 +0.22 1.55% forint 00 50 % Polish zloty 4.2580 4.2519 -0.14% 3.43% Romanian leu 4.5955 4.6005 +0.11 -1.32%

%

Croatian 7.4130 7.4155 +0.03 1.92% kuna % Serbian 118.99 119.22 +0.19 3.66% dinar 00 00 % Note: daily calculated previo close 1800 change from us at CET

STOCKS

Latest Previo Daily Change

us

close change in

2017

Prague 1035.3 1036.5 -0.12% +12.3 5 6 4% Budapest 37978. 38011. -0.09% +18.6 61 33 7% Warsaw 2480.5 2471.7 +0.36 +27.3 7 4 % 4% Bucharest 8356.1 8378.9 -0.27% +17.9 4 3 4% Ljubljana 828.89 826.86 +0.25 +15.5 % 1% Zagreb 1900.1 1901.3 -0.06% -4.75% 4 5 Belgrade 724.22 724.11 +0.02 +0.95 % % Sofia 714.14 714.03 +0.02 +21.7 % 8%

BONDS

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

Republic

2-year -0.016 -0.021 +072b -2bps

ps

5-year 0.045 0.012 +035b +1bps

ps

10-year 0.916 0.032 +053b +3bps

ps Poland

2-year 1.728 0.005 +246b +1bps

ps

5-year 2.624 0.016 +293b +1bps

ps

10-year 3.295 0.004 +291b +0bps

ps

FORWARD RATE AGREEMENT 3x6 6x9 9x12 3M

interb ank

Czech Rep <PR 0.6 0.71 0.8 0

IBOR=>

Hungary <BU 0.21 0.25 0.31 0.15

BOR=>

Poland <WI 1.77 1.79 1.85 1.73

BOR=>

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

($1 = 254.8100 forints)

(Additional reporting by Luiza Ilie in Bucharest; Editing by Adrian Croft)