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CEE MARKETS-Fx, bonds retreat on ECB, Serbia keeps rates on hold

* Bonds give up ground as ECB minutes suggest rhetoric change

* Bond yields drop initially as China dismisses report on U.S. debt

* Serbian central bank keeps rates on hold

* Romanian stocks outperform, a bank stock is a key driver

(Recasts with impact of ECB minutes, Serbian central bank rate decision, Romanian auction, Czech central bank) BUDAPEST, Jan 11 (Reuters) - Central European currencies and government bonds retreated on Thursday as minutes from the ECB's December meeting triggered some expectation that it may shift to more hawkish rhetoric. The European Central Bank's monetary stimulus in the euro zone has also generated additional demand in European Union members which still use their own currencies. The minutes said the ECB should revisit its communication stance in early 2018 and gradually adjust its language to reflect improved growth prospects. "The ECB minutes have stopped the earlier yield decline," one Budapest-based fixed income trader said. "I do not think that the ECB could cause change in the thinking of the (dovish) Hungarian central bank very significantly, but it still watches the ECB," the trader added. Central European currencies and bonds firmed earlier on Thursday due to increased appetite after Chinese regulators dismissed a media report the government is halting or reducing its purchases of U.S. debt. They reversed the rise after the publication of the ECB minutes. The forint, the zloty and the leu flattened out against the euro, and Croatia's kuna tested this year's weakest levels, shedding 0.1 percent to trade at 7.4585. Only the crown retained some of its gains, after the Czech central bank announced a new strategy to manage its huge foreign currency reserves. Nordea analyst Natalia Kornelia Setlak projected that the region's main currencies will strengthen this year, including the forint despite the Hungarian central bank's loose policy. "Going forward, we expect a continued positive sentiment for the EM (emerging market) currencies this year," she said. The dinar was steady at 118.8 against the euro after the Serbian central bank kept its benchmark rate on hold as expected, saying inflation was under control. Elsewhere in the region, inflation concerns have led to rate hikes in Prague and Bucharest. The Romanian central bank delivered its first hike in a decade on Monday. A rise in the shares of Banca Transilvania, one of Romania's top banks, has been a key driver of Bucharest's equities index recently, which has outperformed the region with 5.2 percent rise this year, gaining 1.5 percent on Thursday. Romania's government sold 500 million lei ($129.76 million)worth of 5-year bonds at an average yield of 3.8 percent at an auction as expected. Hungarian government bond yields rose by about 3 basis points from the day's lows after the ECB minutes, but some bonds were still below late Wednesday levels. The 10-year paper traded at a yield of 1.97 percent. Poland's corresponding yield initially dropped 5 basis points, but rose 6 basis points from there by late trade to 3.3345 percent.

CEE SNAPSHOT AT MARKETS 1438 CET

CURRENCI ES

Latest Previous Daily Change bid close change in 2018 Czech 25.5400 25.5550 +0.06% +0.01%

crown

Hungary 309.3500 309.4200 +0.02% +0.51%

forint

Polish 4.1746 4.1760 +0.03% +0.04%

zloty

Romanian 4.6420 4.6410 -0.02% +0.81%

leu

Croatian 7.4585 7.4485 -0.13% -0.38%

kuna

Serbian 118.8000 118.8000 +0.00% -0.25%

dinar

Note: calculated from 1800 CET

daily change

Latest Previous Daily Change close change in 2018 Prague 1107.14 1101.730 +0.49% +2.69%

0

Budapest 39507.27 39651.23 -0.36% +0.33% Warsaw 2523.84 2511.27 +0.50% +2.54% Bucharest 8157.12 8034.85 +1.52% +5.20% Ljubljana 819.74 818.42 +0.16% +1.66% Zagreb 1852.71 1857.69 -0.27% +0.53% Belgrade <.BELEX15 767.80 767.53 +0.04% +1.05% > Sofia 705.54 697.93 +1.09% +4.15%

BONDS

Yield Yield Spread Daily (bid) change vs Bund change

in

Czech spread

Republic

2-year <CZ2YT=RR 0.5980 0.0680 +118bps +4bps > 5-year <CZ5YT=RR 0.9470 0.0140 +110bps -3bps > 10-year CZ10YT=R 1.6750 -0.0340 +118bps -5bps

R> Poland

2-year <PL2YT=RR 1.6230 -0.0030 +221bps -4bps > 5-year <PL5YT=RR 2.6060 0.0190 +276bps -2bps > 10-year <PL10YT=R 3.3380 0.0050 +284bps -1bps

R>

FORWARD RATE AGREEMEN

T

3x6 6x9 9x12 3M

interban k

Czech Rep < 1.03 1.20 1.33 0.76

PRIBOR=>

Hungary < 0.03 0.15 0.21 0.02

BUBOR=>

Poland < 1.76 1.78 1.88 1.72

WIBOR=> Note: FRA are for ask prices quotes

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************ ($1 = 3.8532 lei)

(Additional reporting by Luiza Ilie in Bucharest; Editing by Ralph Boulton and Peter Graff)