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CEE MARKETS-Forint hits 4-month low after Fed tightening signal

* Forint, zloty fall as Fed signals balance sheet tightening Forint hits 4-month low on loose Hungarian cbank policy

* Hungarian debt yields hesitate near record lows

BUDAPEST/PRAGUE, Sept 21 (Reuters) - Central Europe's most liquid currencies, the forint and the zloty fell on Thursday after the Federal Reserve signalled balance sheet tightening and one more rate hike in 2017. "Tighter policy by the Fed cuts liquidity in the world and affects risk assets like emerging markets," one Budapest-based fixed income trader said. The forint's reaction was the biggest in the region after the Hungarian central bank (NBH) announced further monetary easing measures on Tuesday, going against a global trend of tightening. The forint pierced the psychological line at 310 against the euro, and fell to 310.43 by 0813 GMT, down 0.6 percent, hitting 4-month lows. The region's most liquid unit, the zloty, shed 0.4 percent to trade at 4.289 per euro. Hungary's 12-month Treasury bill auction, its first debt sale since Tuesday's NBH meeting, is expected to generate strong demand despite the forint weakening, traders said. The NBH cut its overnight deposit rate deeper into the negative on Tuesday and pledged liquidity measures to push long-term government debt yields lower. Its decisions pushed yields to record lows in maturities up to 10 years by Wednesday and the BUBOR interbank interest rates into the negative for the first time ever in the shortest, overnight and one-week maturities. Yields did not decline further on Thursday. "The news that the Fed will tighten its balance sheet causes some uncertainty, but we will see how long that will last," one Budapest-based fixed income trader said. The NBH's easing measures have increased the forint's volatility. The Fed's comments alone would not justify a big fall as monetary tightening in the United States will be gradual and extended over years, one currency dealer said, "My feeling is that strengthening remains the forint's natural direction," the dealer added, referring to a big trade deficit and robust economic growth in Central Europe. Elsewhere, the Czech crown remained almost steady, trading at 26.11 against the euro. Last month the Czechs became the first in the European Union to lift central bank rates since 2012, and may continue to tighten policy further later this year. Foreign investors hold tens of billions of euros worth of speculative positions in the crown which could lose value if the shrinking of the Fed's balance sheet also encourages the European Central bank to tighten its own policies, CSOB analysts said in a note. In stock markets, a one percent fall in copper prices in London led to a 2.6 percent plunge in the shares of Polish copper producer KGHM and that helped Warsaw's bluechip index fall 0.7 percent.

CEE MARKETS SNAPSH AT 1019 CET

OT CURRENCIES

Latest Previo Daily Change

us

bid close change in

2017

Czech crown 26.110 26.102 -0.03% 3.44% 0 0 Hungary 310.43 308.55 -0.60% -0.52% forint 00 50 Polish zloty 4.2890 4.2716 -0.41% 2.68% Romanian leu 4.5985 4.5967 -0.04% -1.38% Croatian 7.4830 7.4795 -0.05% 0.96%

kuna

Serbian 119.10 119.11 +0.01 3.57% 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 1047.7 1047.3 +0.04 +13.6 6 1 % 9% Budapest 38158. 38108. +0.13 +19.2 99 04 % 4% Warsaw 2481.5 2499.6 -0.72% +27.3 1 3 9% Bucharest 7908.2 7918.0 -0.12% +11.6 6 5 2% Ljubljana 801.92 801.22 +0.09 +11.7 % 5% Zagreb 1830.4 1821.1 +0.52 -8.24% 9 1 % Belgrade 731.81 728.77 +0.42 +2.01 % % Sofia 682.96 677.65 +0.78 +16.4 % 6%

BONDS

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

Republic

2-year -0.11 0 +056b -2bps

ps

5-year 0.237 0 +048b -4bps

ps

10-year 1.093 0.019 +062b -2bps

ps Poland

2-year 1.805 0.032 +247b +2bps

ps

5-year 2.71 0.022 +295b -1bps

ps

10-year 3.371 0.041 +290b +1bps

ps

FORWARD RATE AGREEMENT 3x6 6x9 9x12 3M

interb ank

Czech Rep <PR 0.68 0.83 0.92 0

IBOR=>

Hungary <BU 0.07 0.09 0.12 0.06

BOR=>

Poland <WI 1.76 1.792 1.84 1.73

BOR=>

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

(Reporting by Sandor Peto; Editing by Andrew Heavens)