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CEE MARKETS-Leu sets record low despite expected strong GDP growth

* Romania fiscal, monetary policy uncertainty weighs on its assets

* Leu hits record lows though robust Q3 growth figure is expected

* Zloty eases, CPI figures do not support case of rate hikes

(Adds leu record low, failed Romanian bond auction, Polish data, new comment) BUDAPEST, Nov 13 (Reuters) - The leu set record lows on Monday despite expectations for robust output data from Romania, depressed by uncertainty over a likely government spending spree and continuing fraud investigations in Bucharest. Anti-corruption prosecutors opened a probe into the leader of the ruling Social Democrat Party, Liviu Dragnea, on suspicion of forming a "criminal group" to siphon off cash from state projects. A controversial tax overhaul plan has also weighed on Romanian asset prices. The leftists' fiscal policy has been loose, including steep wage hikes which boosted Romania's inflation to a four-year high of 2.6 percent by October and led to an upwards revision in the central bank's (NBR) inflation forecast last week. It also signaled a shift in its monetary policy focus to keeping market interest rates near its benchmark rate, and said that it would be more flexible on the exchange rate. Its comments pushed the leu through the 4.6 line against the euro, which market participants had believed was defended by the NBR in the past. The leu set record lows and slipped further on Monday to 4.657. At 1425 GMT, it traded at 4.6553, weaker by 0.15 percent from Friday's close. Romanian government bond prices have also dropped and their yields reached multi-year highs by Friday. On Monday, Romanian debt managers rejected all bids at a tender to sell March 2022 bonds as demand was less than half the offered amount. The main Central European economies are due to release third-quarter economic output figures on Tuesday. Romania is expected to report the strongest annual growth rate in the region. The median forecast of analysts in a Reuters poll was 5.8 percent for Romania's growth. Given uncertainties over fiscal policy, government spending late this year and the NBR's response, Romanian assets will remain fragile, market participants said. "Whereas we would not exclude additional short-term setbacks for the leu..., a fast depreciation towards EUR/RON 4.70 would increase pressure for policy makers to react," Raiffeisen analyst Gunter Deuber said in a note. The prospect of strong output data did not help Poland's zloty either, which eased 0.2 percent to 4.2355 against the euro, even though the central bank (NBP) said fundamentals would justify some zloty firming. Detailed October inflation data did not change the perception that the bank is unlikely to tighten interest rates before the last quarter of 2018. "(Capital) inflow to the region continues, but from the other side, the NBP maintain that there is no hurry with hikes, so the zloty lost some wind in the sails," said Piotr Poplawski, senior economist of ING Bank.

CEE MARKETS SNAPSH AT 1525 CET

OT CURRENCIES

Latest Previo Daily Change

us

bid close change in

2017

Czech crown 25.554 25.556 +0.01 5.69% 0 5 % Hungary 311.92 311.73 -0.06% -0.99% forint 00 50 Polish zloty 4.2355 4.2263 -0.22% 3.98% Romanian leu 4.6553 4.6481 -0.15% -2.58% Croatian 7.5500 7.5465 -0.05% 0.07%

kuna

Serbian 118.47 118.62 +0.13 4.12% 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 1061.8 1063.7 -0.17% +15.2 4 0 2% Budapest 39446. 39435. +0.03 +23.2 86 24 % 6% Warsaw 2443.2 2457.6 -0.59% +25.4 1 2 3% Bucharest 7750.9 7771.6 -0.27% +9.40 6 3 % Ljubljana 787.92 792.00 -0.52% +9.80

%

Zagreb 1844.4 1857.0 -0.68% -7.54% 0 2 Belgrade 736.12 738.64 -0.34% +2.61

%

Sofia 669.31 671.78 -0.37% +14.1

3% BONDS

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

Republic

2-year 0.49 0.145 +123b +14bp ps s 5-year 0.881 0.009 +121b +1bps

ps

10-year 1.713 -0.001 +131b +0bps

ps Poland

2-year 1.614 0.042 +236b +4bps

ps

5-year 2.592 0.014 +292b +2bps

ps

10-year 3.422 0.047 +302b +5bps

ps

FORWARD RATE AGREEMENT 3x6 6x9 9x12 3M

interb ank

Czech Rep <PR 0.96 1.11 1.22 0

IBOR=>

Hungary <BU 0.03 0.06 0.09 0.03

BOR=>

Poland <WI 1.767 1.81 1.913 1.73

BOR=>

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

(Additional reporting by Luiza Ilie in Bucharest and Bartosz Chmielewski in Warsaw, Editing by Angus MacSwan/William Maclean)