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CEE MARKETS-Forint hits 4-month low, Hungarian bonds defy Fed signal

* Zloty also falls as Fed signals balance-sheet tightening

* Forint slides on loose Hungarian cbank policy

* Hungarian debt yields hesitate near record lows

(Recasts with Hungarian T-bill auction, bonds, new comments) BUDAPEST/PRAGUE, Sept 21 (Reuters) - Hungarian government debt yields fell to new record lows and the forint led Central European currencies lower on Thursday after the Federal Reserve signalled balance-sheet tightening and one more rate hike in 2017. The Fed's guidance followed monetary easing measures by the Hungarian central bank (NBH), including a cut in its overnight deposit rate deeper into the negative. Tighter Fed policy would make risky assets in emerging markets, including the European Union's eastern members, relatively less attractive, traders said. The forint hit 4-month lows, piercing the psychological line of 310 per euro. At 1331 GMT it traded at 310.55, down 0.6 percent, while the zloty shed 0.3 percent. But Hungarian debt prices continued to rally as investors gave credit to the NBH's pledges that it would push yields lower, including longer maturities, traders said. The government sold 12-month Treasury bills at negative yields for the first time ever at an auction on Thursday.

Hungary's 10-year government bond yield was fixed at a new record low of 2.65 percent, down 6 basis points, while Poland's corresponding yield rose 3 basis points to 3.344 percent. Poland has better credit ratings than Hungary, and Central European economies are powering ahead. But tension between Warsaw and Brussels over the rule of law in Poland has weighed on its asset prices. Societe Generale analyst Régis Chatellier recommended investors sell or "go underweight" on Polish bonds on Wednesday.

In a note released on Thursday, Societe strategist Phoenix Kalen said she saw "compelling reasons" for Hungarian long-term bonds to perform very well in the coming months on the NBH's "willingness to introduce targeted instruments", and its "credibility where yields are concerned". One Budapest-based dealer said the Fed's tightening would take place over a long period and therefore would not keep the forint weak. "My feeling is that strengthening remains the forint's natural direction," the dealer added. Hungary's economic growth is expected to increase to more than 4 percent in the second half of the year, Economy Minister Mihaly Varga told Reuters. Elsewhere, the Czech crown remained steady. Last month the Czechs became the first in the European Union to lift central bank rates since 2012. Foreign investors hold big speculative positions in the crown which could lose value if the shrinking of the Fed's balance sheet encourages the European Central bank to tighten its own policies, CSOB analysts said in a note.

CEE MARKETS SNAPSH AT 1531 CET

OT CURRENCIES

Latest Previo Daily Change

us

bid close change in

2017

Czech crown 26.100 26.102 +0.01 3.48% 0 0 % Hungary 310.55 308.55 -0.64% -0.56% forint 00 50 Polish zloty 4.2840 4.2716 -0.29% 2.80% Romanian leu 4.5995 4.5967 -0.06% -1.40% Croatian 7.4810 7.4795 -0.02% 0.99%

kuna

Serbian 119.12 119.11 -0.01% 3.55% 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 1049.3 1047.3 +0.19 +13.8 2 1 % 6% Budapest 38139. 38108. +0.08 +19.1 15 04 % 7% Warsaw 2471.7 2499.6 -1.12% +26.8 3 3 9% Bucharest 7904.6 7918.0 -0.17% +11.5 8 5 7% Ljubljana 801.25 801.22 +0.00 +11.6 % 6% Zagreb 1829.9 1821.1 +0.49 -8.26% 7 1 % Belgrade 732.52 728.77 +0.51 +2.11 % % Sofia 681.23 677.65 +0.53 +16.1 % 7%

BONDS

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

Republic

2-year 0.05 0.275 +072b +27bp ps s 5-year 0.174 0.059 +043b +4bps

ps

10-year 1.134 0.06 +068b +4bps

ps Poland

2-year 1.805 0.035 +248b +3bps

ps

5-year 2.71 0.038 +297b +2bps

ps

10-year 3.355 0.038 +290b +2bps

ps

FORWARD RATE AGREEMENT 3x6 6x9 9x12 3M

interb ank

Czech Rep <PR 0.71 0.86 0.96 0

IBOR=>

Hungary <BU 0.07 0.09 0.115 0.05

BOR=>

Poland <WI 1.76 1.82 1.86 1.73

BOR=>

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

(Additional reporting by Marcin Goettig in Warsaw; Editing by Andrew Roche)