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CEE MARKETS-Weak dollar buoys zloty despite Polish inflation plunge

* Polish annual CPI falls to 2 pct in Dec from 2.5 pct in Nov

* Polish central bank will not rush into rate hikes-analysts

* Renewed dollar selling help zloty, forint rebound

* Leu rebounds, Romanian stocks hit two-month high

(Recasts with Polish figures, fresh comments) BUDAPEST/WARSAW, Jan 3 (Reuters) - The zloty rebounded on dollar selling after an initial fall on Wednesday, even though Poland reported a plunge in inflation which may curb bets for central bank rate hikes late this year. Poland is usually the first state in the eastern wing of the European Union to report monthly inflation figures, and the region's inflation rates often move in tandem. Its inflation fell to 2 percent in December, below analysts' 2.15 percent consensus forecast, from 2.5 percent in November. The zloty traded steady at 4.163 against the euro at 1400 GMT, approaching 4.1605, its strongest levels since August 2015, reached on Tuesday. Initially it weakened, in tandem with the forint and the Czech crown, but the currencies rebounded as pressure on the dollar returned in global markets. Currencies in the European Union's fast growing eastern economies often benefit from dollar selling. Market strategists are downbeat about the greenback's near-term prospects on concerns that future U.S. rate hikes have been broadly priced into the markets. Even though a strong rise in wages is a key driver of Central Europe's robust growth, Polish inflation is likely to remain moderate early this year, analysts said. "Such significant (inflation) decrease should strengthen current MPC (central bank) tone and bring some certainty to the market that a potential interest rate hike... would happen later rather than sooner," said PKO BP strategist Jaroslaw Kosaty. "This should support zloty weakening at some stage, but in this moment it seems that it still faces new highs, because of a possible EURUSD rise above 1.21," he said, adding that a dollar rebound later this year could weaken the zloty. The Czech crown also rebounded, but remained weaker by 0.1 percent from Tuesday, at 25.545 versus the euro. The Czech central bank has increased its record low interest rates twice since August to defend its 2 percent inflation target, the region's lowest. In the minutes of its December meeting, it quoted some of its board members as warning over economic overheating risks. It repeated that the timing of further rate hikes was conditional on macroeconomic variables, including the crown's exchange rate. It added, though, that in many other countries monetary policy was even more accommodative, "and a rising interest rate differential could not be ignored in a small open economy". Elsewhere, the leu rebounded from its end-2017 record lows against the euro in its first session this year, trading firmer by 0.3 percent at 4.635, after Romanian president Klaus Iohannis signed the controversial 2018 budget bill. The Bucharest Stock Exchange index rose 1.9 percent, hitting a 2-month high.

CEE SNAPSHOT AT MARKETS 1500 CET

CURRENCI ES

Latest Previous Daily Change bid close change in 2018 Czech <EURCZK= 25.5450 25.5125 -0.13% -0.01% crown > Hungary <EURHUF= 309.1500 309.1750 +0.01% +0.57% forint > Polish <EURPLN= 4.1630 4.1628 -0.00% +0.32% zloty > Romanian <EURRON= 4.6350 4.6488 +0.30% +0.96% leu > Croatian <EURHRK= 7.4400 7.4605 +0.28% -0.13% kuna > Serbian <EURRSD= 118.5700 118.3700 -0.17% -0.06% dinar > Note: calculated from 1800 CET

daily change

Latest Previous Daily Change close change in 2018 Prague 1089.37 1083.650 +0.53% +1.04%

0

Budapest 39562.86 39443.57 +0.30% +0.47% Warsaw 2444.12 2461.21 -0.69% -0.69% Bucharest 7900.46 7753.74 +1.89% +1.89% Ljubljana <.SBITOP 794.62 806.38 -1.46% -1.46% > Zagreb 1838.73 1839.22 -0.03% -0.22% Belgrade <.BELEX1 754.59 759.80 -0.69% -0.69%

5>

Sofia 681.34 684.71 -0.49% +0.57%

BONDS

Yield Yield Spread Daily (bid) change vs Bund change

in

Czech spread

Republic

2-year <CZ2YT=R 0.6170 0.1410 +124bps +15bps

R>

5-year <CZ5YT=R 0.8680 0.0450 +108bps +7bps

R>

10-year <CZ10YT= 1.6940 0.0390 +125bps +6bps

RR> Poland

2-year <PL2YT=R 1.7300 0.3020 +236bps +31bps

R>

5-year <PL5YTR 2.6320 -0.0180 +285bps +0bps

R>

10-year <PL10YT= 3.3220 0.0040 +288bps +2bps

RR>

FORWARD RATE AGREEMEN

T

3x6 6x9 9x12 3M

interban k

Czech Rep 1.06 1.25 1.40 0.00

<PRIBOR=

>

Hungary 0.08 0.13 0.18 0.03 Poland 1.76 1.82 1.90 1.72

Note: FRA are for ask prices quotes

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(Additional reporting by Luiza Ilie in Bucharest; Editing by Keith Weir)