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CEE MARKETS-Leu near six-week highs as Romanian central bank meets

* Czech 2-year yield above zero for first time since Aug 2016

* Leu near 6-week high ahead of central bank meeting

* Romania cbank seen holding main rate, deposit rate hike possible

BUDAPEST/PRAGUE, Oct 3 (Reuters) - Expectations for some monetary tightening in Central Europe helped the mid-yield on the Czech two-year government bond rise above zero on Tuesday for the first time in more than a year, while the Romanian leu traded near six-week highs. After years in which interest rates trended downwards across the region, policy divisions are starting to emerge, with a rebound in inflation becoming a worry for central banks in the Czech Republic and Romania. Romania's central bank is expected to keep its main interest rate on hold at a record low 1.75 percent at its meeting on Tuesday, but the bank's rhetoric could turn more hawkish. There are also some expectations that the bank could narrow its standing facilities corridor by lifting the interest rate on its deposit facility, which would amount to a policy tightening. ING analysts said in a note that any disappointment on that front could weigh on the leu, which reached six-week highs against the euro late on Monday and traded near that level on Tuesday, at 4.5855 at 0859 GMT. The currency has been buoyed by a rise in interbank interest rates to their highest levels since late 2014 in recent days. Prime Minister Mihai Tudose criticised the central bank on Friday for allowing the rise, but it continued this week. The ask yield on the three-month interbank rate rose to 1.8 percent, exceeding the central bank's main rate. "We look for the deposit facility hike at 7 November meeting, after the 26 October ECB meeting, but given the recent weakening pressure on the RON (leu), we attach a 30 percent probability for NBR to frontload this decision," the ING analysts said. Five out of eight analysts in a Reuters poll last month projected a first hike in the Romanian central bank's main interest rate by the end of the first quarter of 2018. Among European Union countries, so far only the Czech central bank has followed the U.S. Federal Reserve in hiking borrowing costs, lifting its main rate in early August. Expectations for another hike in November have been buoying Czech debt yields and helped the crown strengthen above the 26 psychological line against the euro. It traded at 25.942 on Tuesday. "We are close (to 25.900) but we have bounced back already three times so far but every time above 26.000," one dealer said. "As we are below now and as long as we stay here for a few days I think we can test that level but I don't think it'll be a massive break."

CEE MARKETS SNAPSH AT 1059 CET

OT CURRENCIES

Latest Previo Daily Change

us

bid close change in

2017

Czech crown 25.942 25.927 -0.06% 4.11% 0 5 Hungary 311.70 312.24 +0.17 -0.92% forint 00 00 % Polish zloty 4.3110 4.3167 +0.13 2.15%

%

Romanian leu 4.5855 4.5849 -0.01% -1.10% Croatian 7.4985 7.4985 +0.00 0.75% kuna % Serbian 119.11 119.16 +0.04 3.56% 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 1051.9 1050.7 +0.11 +14.1 0 4 % 4% Budapest 37853. 37751. +0.27 +18.2 88 85 % 8% Warsaw 2484.2 2469.5 +0.59 +27.5 2 8 % 3% Bucharest 7921.6 7894.2 +0.35 +11.8 2 6 % 1% Ljubljana 796.30 795.37 +0.12 +10.9 % 7% Zagreb 1808.1 1807.5 +0.03 -9.36% 1 3 % Belgrade 722.07 719.50 +0.36 +0.66 % % Sofia 686.76 687.75 -0.14% +17.1

1% BONDS

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

Republic

2-year 0.254 -0.028 +095b -4bps

ps

5-year 0.372 0 +063b -2bps

ps

10-year 1.35 0.022 +087b -1bps

ps Poland

2-year 1.764 0.009 +246b -1bps

ps

5-year 2.705 0.008 +297b -1bps

ps

10-year 3.372 0.014 +289b -2bps

ps

FORWARD RATE AGREEMENT 3x6 6x9 9x12 3M

interb ank

Czech Rep <PR 0.72 0.88 1.02 0

IBOR=>

Hungary <BU 0.08 0.11 0.155 0

BOR=>

Poland <WI 1.7875 1.84 1.89 1.73

BOR=>

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

(Additional reporting from Luiza Ilie and Radu Marinas in Bucharest; Editing by Catherine Evans)