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CEE MARKETS-Hungarian bonds extend gains, yields at record lows

* Hungarian 10-year yield spread over Bunds is at record lows

* CEE assets rangebound, investors await guidance from ECB

* German election watched, but unlikely to move CEE markets

BUDAPEST, Sept 22 (Reuters) - Hungarian government bonds slightly extended their gains on Friday due to expectations that Hungary's central bank (NBH) will continue to support the market despite a gradual worldwide monetary tightening. The yield on 10-year bonds fell 5 basis points from Thursday's fixing, to 2.60 percent, its lowest ever level, and its 214 basis point spread over corresponding Bunds was also a record low. The NBH cut its overnight deposit rate deeper into the red on Tuesday and pledged to use further tools to push market interest rates lower along the curve. Investors are recalculating their asset allocations to Hungary and the expectation is quite strong that the NBH could maintain loose conditions for years, even if global interest rates continue to rise, traders said. "Negative short-term yields mean a capital loss and that nudges investments into longer maturities," one Budapest-based trader said. "Hungary's central bank is going against the grain ... (but) the feeling is that the set-up they have could work and stay stable in the next years." Bond, currency and stock prices in Central Europe's emerging markets mostly moved little as investors await confirmation from the European Central Bank (ECB) that it will follow the slow tightening signaled by the Federal Reserve on Wednesday. Elections to be held in Germany, the region's biggest export market, over the weekend are also being watched. But with Angela Merkel's conservatives maintaining a strong lead in opinion polls, the outcome is unlikely to unsettle Central European markets, analysts said. "The key thing that investors in the region are waiting for is the guidance the ECB will give in October," said Eszter Gargyan, analyst at Citigroup in Budapest. The forint traded marginally lower at 309.61 at 1015 GMT. The NBH's dovish signals and measures have knocked it down from 28-month highs beyond 302, and the bank is expected to keep it around 310, easing policy further if the region's strong growth again lifts the currency, market participants said. "That said, in comparison to the appreciation potential especially in Czech crown, but also in Polish zloty that we see for the fourth quarter, we would clearly favor these currencies over the forint," Raiffeisen analyst Wolfgang Ernst said in a note. "It seems that HGB (Hungarian government bond) yields could even fall further," analyst Stephan Imre added in the same note.

CEE SNAPSHOT AT 1152 CET

MARKETS CURRENCIES

Latest Previous Daily Change bid close change in 2017 Czech crown 26.0400 26.0665 +0.10% 3.71% Hungary 309.8000 309.7900 +0.00% -0.32%

forint

Polish zloty 4.2733 4.2756 +0.05% 3.06% Romanian leu 4.5955 4.5990 +0.08% -1.32% Croatian 7.4840 7.4815 -0.03% 0.95%

kuna

Serbian 119.0900 119.2100 +0.10% 3.58%

dinar

Note: daily calculated previous close at 1800 CET change from

STOCKS

Latest Previous Daily Change close change in 2017 Prague 1047.79 1047.80 +0.00% +13.69% Budapest 38037.57 38109.21 -0.19% +18.86% Warsaw 2471.60 2468.72 +0.12% +26.88% Bucharest 7849.41 7886.13 -0.47% +10.79% Ljubljana 799.10 801.25 -0.27% +11.36% Zagreb 1825.16 1827.54 -0.13% -8.51% Belgrade 728.36 732.52 -0.57% +1.53% Sofia 678.65 677.65 +0.15% +15.73%

BONDS

Yield Yield Spread Daily (bid) change vs Bund change

in

Czech spread

Republic

2-year -0.215 0.011 +046bps +0bps 5-year 0.287 0 +052bps -2bps 10-year <CZ10YT=RR 1.132 -0.05 +067bps -6bps >

Poland

2-year 1.796 -0.018 +247bps -3bps 5-year 2.725 -0.011 +296bps -3bps 10-year <PL10YT=RR 3.378 -0.001 +291bps -1bps > FORWARD RATE AGREEMENT 3x6 6x9 9x12 3M

interban k

Czech Rep <P 0.69 0.85 0.93 0

RIBOR=>

Hungary <B 0.02 0.08 0.115 0.05

UBOR=>

Poland <W 1.762 1.818 1.88 1.73

IBOR=>

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

(Additional reporting by Jason Hovet in Prague)