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CEE MARKETS-Leu falls as central bank seen letting it move more

* Leu eases through 4.6 line vs euro on central bank comments

* Comments interpreted as increased leniency to fx movements

* Polish bank stocks surge on Q3 results, rate hike hopes

* Small-cap stocks put Budapest index on rollercoaster

(Recasts with Romanian central bank decision and comments, kuna and dinar fall) BUDAPEST/BUCHAREST, Nov 7 (Reuters) - The leu hit its weakest level against the euro since 2012 on Tuesday after the market interpreted comments by the Romanian central bank governor as favoring a looser grip on the exchange rate. The currency had already eased slightly before the central bank's meeting as some investors expected the bank (NBR) to deliver a relatively dovish message. The NBR kept its main interest rate steady at 1.75 percent as expected and narrowed the interest rate corridor around it. The bank said later that it would shift to "firm" instead of "adequate" liquidity management, which means it wants to keep market interest rates closer to the main rate, market participants said. Together with other comments about more exchange rate flexibility, this suggests "that the central bank is shifting towards more interest rate control instead of exchange rate control," Erste economist Horia Braun-Erdei said in a note. The leu plunged almost a percent after the comments, made by NBR Governor Mugur Isarescu at a news conference. It pierced the 4.6 line against the euro, a level many market participants believed the NBR had been defending. At 1525 GMT the leu traded at 4.6215, down two-thirds of a percent from Monday. The upside for the euro is limited, though, as Romanian government spending is expected to jump late this year, boosting leu liquidity in markets, Braun-Erdei said. "The NBR will welcome the occasion to sell some EUR and thus absorb some of that excess in its pursuit of 'firm liquidity management'," she added. Elsewhere in Central Europe, the Polish central bank is also seen holding fire at its meeting on Wednesday, but it is expected to start to increase interest rates by late next year. Expectations for higher rates contributed to a rally in Polish banking shares, helping push Warsaw's blue-chip share index to its highest level since December 2013. "It seems that banks will now be the bourse's engine. This might result from the expectations of the interest rate hike and banks' rising margins," a Warsaw-based broker said. Budapest's main equities index briefly hit a record high, boosted by a short-lived rally of small-cap firms controlled by Lorinc Meszaros, a tycoon close to the government. Croatia's kuna set a 10-month low against the euro, partly because companies need euros for provisions due to

a crisis at food group Agrokor .

Serbia's dinar fell a quarter of a percent to 118.8 against the euro, after the IMF cut its economic forecast for Serbia and urged reforms.

CEE MARKETS SNAPSH AT 1625 CET

OT CURRENCIES

Latest Previo Daily Change

us

bid close change in

2017

Czech crown 25.567 25.563 -0.01% 5.63% 0 5 Hungary 311.75 311.38 -0.12% -0.94% forint 00 50 Polish zloty 4.2445 4.2414 -0.07% 3.76% Romanian leu 4.6215 4.5913 -0.65% -1.87% Croatian 7.5400 7.5378 -0.03% 0.20%

kuna

Serbian 118.80 118.52 -0.24% 3.83% 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 1055.7 1055.5 +0.02 +14.5 3 6 % 5% Budapest 39934. 40115. -0.45% +24.7 80 77 8% Warsaw 2542.8 2515.3 +1.10 +30.5 9 4 % 4% Bucharest 7746.0 7784.0 -0.49% +9.33 1 5 % Ljubljana 784.85 788.85 -0.51% +9.37

%

Zagreb 1816.5 1815.7 +0.05 -8.94% 7 0 % Belgrade 729.68 729.65 +0.00 +1.72 % % Sofia 674.34 672.79 +0.23 +14.9 % 9%

BONDS

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

Republic

2-year 0.313 0.008 +107b +0bps

ps

5-year 0.748 0.03 +112b +3bps

ps

10-year 1.598 0 +126b +0bps

ps Poland

2-year 1.62 -0.012 +238b -2bps

ps

5-year 2.649 -0.026 +302b -2bps

ps

10-year 3.432 -0.013 +309b -2bps

ps

FORWARD RATE AGREEMENT 3x6 6x9 9x12 3M

interb ank

Czech Rep <PR 0.89 0.99 1.11 0

IBOR=>

Hungary <BU 0.08 0.07 0.1 0.03

BOR=>

Poland <WI 1.766 1.829 1.924 1.73

BOR=>

Note: FRA are for ask quotes prices ********************************************************* ***** (Additional reporting by Radu Marinas in Bucharest/Bartosz

Chmielewski and Anna Koper in Warsaw/Igor Ilic in Zagreb; Editing by Matthew Mpoke Bigg and Susan Fenton)