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CEE MARKETS-Stocks move around highs, Czech bonds buck yield decline

* Stocks dance around key levels after year-start rally Prague shares touch another 6-1/2-year high

* Czech yields rise in anticipation of rate hikes

* Yield curve steepens in Bucharest, flattens in Budapest

BUDAPEST/PRAGUE, Jan 5 (Reuters) - Romanian stocks touched a 2-1/2-month high on Friday, while other Central European equities markets took a breather after a rally in the first sessions of the year. After strong gains in 2017, regional stocks rose further in 2018, helped by a global rally, Central Europe's healthy economic output and improved dividends prospects. Romania's stock index, a regional underperformer last year, leads this year's rise, with 3.1 percent gain from 2017 by 0915 GMT. Other indices took a breather around psychological levels. Budapest pierced the 40,000-point line for the first time since Nov. 24. Warsaw retreated behind 2,500 points from Thursday's two-month highs. Prague set a new 6-1/2-year high. Analysts saw room for further gains. "The economy is doing great," said Milan Vanicek, head of research at J&T Banka. "And there are good dividend yields," he said. Vanicek said energy group CEZ, trading at its highest since 2015, could rise further, adding that Moneta bank would be his bet for 2018. "Nice fundamentals, the economy is improving, and there might be already a turnaround in the numbers, meaning not declining but at least steady, and a very nice dividend," he said. Bank stocks rallied in the region in the past year, partly due to expectations of rising interest rates. The crown is seen leading continuing regional currency gains this year. The Czech Republic, where the central bank (CNB) has increased interest rates twice since August, sold Treasury bills on Thursday at a positive yield for the first time in two years. Czech government bond yields rose by 7-10 basis points on Friday, with the 10-year paper bid at 1.711 percent. Romania's central bank may become the first to follow the CNB's rate tightening, but Romanian yields have declined this year, with their curve steepening after an end-year government spending spree. The increased market liquidity is unlikely to prompt action at the Romanian central bank's meeting on Monday as the leu is off its end-2017 record lows, ING analysts said in a note. "While we expect no change in policy stance, we look for central bank to telegraph February hike," they said. In Budapest, bond yields traded near record lows and their curve flattened after a plunge on Thursday amid robust demand at the year's first auction. Long-term yields fell because on Jan. 18 Hungary's central bank will launch long-tenor interest rate swap auctions to help the curve flatten, traders said. The 10-year paper traded at a yield of 1.89 percent, down six basis points from Thursday's fixing.

CEE SNAPSHOT AT MARKETS 1015 CET

CURRENCI ES

Latest Previous Daily Change bid close change in 2018 Czech <EURCZK= 25.5260 25.5290 +0.01% +0.06% crown > Hungary <EURHUF= 308.5000 308.2600 -0.08% +0.78% forint > Polish <EURPLN= 4.1515 4.1507 -0.02% +0.60% zloty > Romanian <EURRON= 4.6350 4.6313 -0.08% +0.96% leu > Croatian <EURHRK= 7.4340 7.4345 +0.01% -0.05% kuna > Serbian <EURRSD= 118.9500 119.0400 +0.08% -0.38% dinar > Note: calculated from 1800 CET

daily change

Latest Previous Daily Change close change in 2018 Prague 1105.29 1105.130 +0.01% +2.52%

0

Budapest 39865.37 39850.00 +0.04% +1.24% Warsaw 2525.85 2533.17 -0.29% +2.63% Bucharest 7991.91 7965.70 +0.33% +3.07% Ljubljana <.SBITOP 799.08 798.46 +0.08% -0.91% > Zagreb 1844.68 1844.20 +0.03% +0.10% Belgrade <.BELEX1 754.55 755.81 -0.17% -0.69%

5>

Sofia 691.29 691.01 +0.04% +2.04%

BONDS

Yield Yield Spread Daily (bid) change vs Bund change

in

Czech spread

Republic

2-year <CZ2YT=R 0.6890 0.0980 +129bps +9bps

R>

5-year <CZ5YT=R 0.9430 0.0730 +115bps +7bps

R>

10-year <CZ10YT= 1.7110 0.0650 +128bps +7bps

RR> Poland

2-year <PL2YT=R 1.6030 -0.0170 +221bps -2bps

R>

5-year <PL5YT=R 2.5450 -0.0010 +275bps +0bps

R>

10-year <PL10YT= 3.2590 0.0080 +283bps +1bps

RR>

FORWARD RATE AGREEMEN

T

3x6 6x9 9x12 3M

interban k

Czech Rep 1.07 1.25 1.38 0.00

<PRIBOR=

>

Hungary 0.03 0.11 0.16 0.03 Poland 1.75 1.79 1.87 1.72

Note: FRA are for ask prices quotes

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(Additional reporting by Luiza Ilie in Bucharest, Editing by William Maclean)