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CEE MARKETS-Dollar retreat lifts EM currencies, Poland keeps monetary policy loose

loose@

* Dollar retreat boosts CEE currencies

* Polish central bank plays down inflation risks

* Czech crown surges, strongest since cap lifted

(Adds Polish central bank decision and comments and Hungary's euro bond sale) BUDAPEST/WARSAW, Oct 4 (Reuters) - Central European currencies jumped on Wednesday, with the crown hitting its strongest levels in almost four years, as a retreat of the dollar triggered flows into emerging markets. Expectations that the Czech Central Bank (CNB) will lift interest rates further also provided support. The CNB, worried by a rebound in inflation, in August became the first European Union central bank to lift rates since 2012.

The Polish central bank (NBP) kept rates on hold at its meeting, playing down inflation risks despite a rise in September to an annual rate of 2.2 percent. NBP Governor Adam Galpinski said inflation could fall to about 1.5 percent soon, and reiterated that he saw no reason to change interest rates this year or next. The zloty ignored the comments, tracking the euro/dollar. In recent weeks, dollar strengthening often led to selling of the region's currencies, and they firmed on Wednesday as the dollar eased. The zloty traded 0.3 percent firmer at 4.3031 against the euro at 1429 GMT. The crown rose 0.2 percent to 25.865 versus the euro, and was the strongest since the CNB in April removed a cap which had kept it weaker than 27 for years. The forint gained 0.2 percent, trading at 311.8. Hungary on Wednesday launched a sale of 10-year bonds worth 1 billion euros ($1.2 bln), to lengthen its euro bond curve by seven years. The sale should fully fund the repurchase of dollar-denominated bonds worth $1.2 billion. The amount of the sale, which was heavily subscribed, and its final terms at 100 basis points over mid-swaps were in line with expectations, one Budapest-based fixed income trader said. The leu firmed 0.2 percent to 4.5796 per euro, touching seven-week highs. Apart from the Czechs, Romania's central bank has been the most worried in the region over a rise in inflation, but the measures and comments it delivered on Tuesday were mixed. It said it would do all that is needed to contain inflation, but it injected 9.4 billion leu ($2.4 bln) into the interbank market through a one-week repo tender, and analysts said it may continue to pump in money to ease a liquidity squeeze. The shortage pushed up ROBOR interbank rates in the past week, prompting criticism of the central bank from Prime Minister Mihai Tudose. The three-month interbank rate rose to its highest levels since late 2014, to 1.8 percent. It retreated only marginally on Wednesday, to 1.79 percent.

CEE MARKETS SNAPSH AT 1629 CET

OT CURRENCIES

Latest Previo Daily Change

us

bid close change in

2017

Czech crown 25.865 25.925 +0.23 4.42% 0 5 % Hungary 311.80 312.30 +0.16 -0.96% forint 00 00 % Polish zloty 4.3031 4.3162 +0.30 2.34%

%

Romanian leu 4.5796 4.5880 +0.18 -0.97%

%

Croatian 7.5002 7.4970 -0.04% 0.73%

kuna

Serbian 119.01 119.23 +0.18 3.65% 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 1052.5 1051.2 +0.12 +14.2 1 0 % 0% Budapest 37881. 37908. -0.07% +18.3 41 57 7% Warsaw 2450.2 2469.5 -0.78% +25.7 0 1 9% Bucharest 7850.7 7888.0 -0.47% +10.8 0 1 1% Ljubljana 800.92 800.31 +0.08 +11.6 % 1% Zagreb 1801.3 1805.2 -0.22% -9.70% 4 3 Belgrade 720.66 721.10 -0.06% +0.46

%

Sofia 677.35 680.67 -0.49% +15.5

0% BONDS

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

Republic

2-year 0.311 0.057 +102b +7bps

ps

5-year 0.428 0.1 +072b +11bp ps s 10-year 1.338 -0.026 +089b -1bps

ps Poland

2-year 1.727 -0.004 +244b +1bps

ps

5-year 2.7 0.003 +299b +2bps

ps

10-year 3.386 0.012 +294b +3bps

ps

FORWARD RATE AGREEMENT 3x6 6x9 9x12 3M

interb ank

Czech Rep <PR 0.73 0.86 0.99 0

IBOR=>

Hungary <BU 0.07 0.11 0.14 0.03

BOR=>

Poland <WI 1.769 1.815 1.87 1.73

BOR=>

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

($1 = 0.8507 euros)

($1 = 3.8916 lei)

(Additional reporting by Luiza Ilie in Bucharest; Editing by Raissa Kasolowsky and Susan Fenton)