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CEE MARKETS-Leu firms, Romanian central bank may hike rates

* Romanian central bank may start to raise rates, analysts split

* Overheating fear may hit bonds if there is no rate hike-trader

* Zloty eases, central bank unlikely to encourage rate hike bets

BUDAPEST/BUCHAREST, Jan 8 (Reuters) - The leu firmed and Romanian government bonds trod water on Monday ahead of a meeting of the country's central bank (NBR) where it may start to increase interest rates from record low levels. The leu had already reached a 2-month high against the euro in the previous session. Trading at 4.636 at 0826 GMT, it was off that high, but still slightly firmer from Friday. A hike in the 1.75 percent benchmark interest rate would make the NBR the second central bank in the European Union's eastern nations to start to lift rates from record low levels, after two hikes by the Czech central bank (CNB) since August. While the CNB has the lowest inflation target in the region at 2 percent, markets have been gripped by overheating concerns in Romania where a surge in wages has helped the economy to grow year. Between August and November, Romania's annual inflation rate surged two percentage points to 3.2 percent. In a Reuters poll, five analysts expected the bank to hold fire, while four projected a quarter point hike. "There are concerns that inflation may rise above 5 percent they will do," one fixed income trader said. "This caused the recent swings in bond yields there... and worries could boost yields if the central bank does not deliver a hike," the trader added. Romanian 2027-expiry bonds traded at a yield of 4.3 percent, flat from Friday. Elsewhere in the region, the zloty eased 0.2 percent to 4.159, but remained near Friday's six-and-a-half year highs of 4.143. The region's currencies generally started the year strengthening, lifted by a rise in risk appetite in global markets and the prospect of healthy economic growth in Central Europe. The Polish central bank is unlikely to encourage expectations for interest rate hikes at its meeting on Wednesday. "The zloty will probably not be helped by comments after the MPC (central bank) meeting," ING analysts said in a note, adding that correction could weaken the zloty to 4.2 in the next couple of weeks, even though a big easing is unlikely. The forint also eased slightly. New Hungarian data showed that industrial output grew 3.4 percent in annual terms in November, half of analysts' forecast, but retail sales grew at a robust 6.4 percent rate. Czech output growth, at 8.5 percent, exceeded expectations, similar to a 11.7 billion crown trade surplus in November. The crown firmed 0.1 percent.

CEE SNAPSHOT AT MARKETS 0926 CET

CURRENCI ES

Latest Previous Daily Change bid close change in 2018 Czech <EURCZK= 25.5360 25.5485 +0.05% +0.02% crown > Hungary <EURHUF= 308.5700 308.5050 -0.02% +0.76% forint > Polish <EURPLN= 4.1590 4.1552 -0.09% +0.42% zloty > Romanian <EURRON= 4.6360 4.6367 +0.02% +0.94% leu > Croatian <EURHRK= 7.4350 7.4375 +0.03% -0.06% kuna > Serbian <EURRSD= 118.3500 118.7400 +0.33% +0.13% dinar > Note: calculated from 1800 CET

daily change

Latest Previous Daily Change close change in 2018 Prague 1108.07 1105.320 +0.25% +2.77%

0

Budapest 39886.60 39995.16 -0.27% +1.29% Warsaw 2530.13 2529.55 +0.02% +2.80% Bucharest 7995.08 7985.82 +0.12% +3.11% Ljubljana <.SBITOP 802.25 802.25 +0.00% -0.51% > Zagreb 1849.71 1849.71 +0.00% +0.37% Belgrade <.BELEX1 753.03 753.03 +0.00% -0.89%

5>

Sofia 686.57 692.24 -0.82% +1.35%

BONDS

Yield Yield Spread Daily (bid) change vs Bund change

in

Czech spread

Republic

2-year <CZ2YT=R 0.6420 0.0310 +125bps +3bps

R>

5-year <CZ5YT=R 0.9410 0.0460 +115bps +4bps

R>

10-year <CZ10YT= 1.6570 0.0100 +121bps +1bps

RR> Poland

2-year <PL2YT=R 1.6220 0.0150 +223bps +1bps

R>

5-year <PL5YT=R 2.5080 0.0130 +271bps +1bps

R>

10-year <PL10YT= 3.2260 0.0020 +278bps +0bps

RR>

FORWARD RATE AGREEMEN

T

3x6 6x9 9x12 3M

interban k

Czech Rep 1.05 1.22 1.36 0.00

<PRIBOR=

>

Hungary 0.03 0.06 0.10 0.03 Poland 1.75 1.79 1.89 1.72

Note: FRA are for ask prices quotes

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(Additional reporting by Marcin Goclowski in Warsaw; Editing by Keith Weir)