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CEE MARKETS-Forint hits 2018 lows, central bank keeps loose policy

* Forint eases, Hungarian central bank maintains loose policy

* Hungarian government bonds track core market yields higher

(Recasts with Hungarian central bank statement, Fed Chair comments) BUDAPEST, Feb 27 (Reuters) - The forint hit a new low for 2018 against the euro on Tuesday after the Hungarian central bank (NBH) kept interest rates at record lows as expected and stuck to its easy policy stance. The NBH, Central Europe's most dovish central bank, said it would keep monetary conditions loose for a prolonged period using its unconventional policy measures. These include a long-term interest rate swap facility launched this year to flatten the curve of market interest rates and yields. The bank's statement coincided with a pledge from new U.S. Federal Reserve Chairman Jerome Powell, in his first testimony in Congress, to stick with gradual interest rate increases. While there were no surprises out of either Budapest or Washington, the policy differential still caused some further forint weakening, dealers said. It eased 0.1 percent to 314 against the euro by 1501 GMT. The Czech crown weakened by 0.2 percent on what a dealer said was some selling from London, while the zloty was steady. "I do not expect the forint to weaken past 315," one Budapest-based dealer said. The Hungarian central bank also reiterated that its policy of keeping long-term bond yields low was targeted at their spread relative to core market yields rather than at any nominal levels. Hungarian bond yields tracked an initial rise and later retreat in yields in U.S. and German bonds. The curve became a bit steeper, with the 10-year yield rising 3-4 basis points to 2.57 percent and the 3-year 2021/C yield rising one basis point to 0.88 percent. The dollar firmed to a two-week high against the euro . Its strength usually also puts pressure on currencies in the European Union's emerging markets. "Regarding the euro, event risk is too big ahead of the weekend, with the Italian elections and the SPD party vote on the (planned) German government coalition looming," another Budapest-based dealer said even before the NBH statement. In equities markets, Budapest's main stock index bucked a modest rise in the region's main bourses, declining 0.8 percent, driven by a 3.9 percent fall in pharmaceutical firm Richter after it issued a profit warning. In Warsaw, Pekao gained 3.5 percent, after Poland's second-biggest bank reported a surge in fourth-quarter earnings and said it would spend all its 2017 and 2018 profits on paying dividends. Polish banks have reported solid results for the fourth quarter of 2017 so far as the accelerating economy and social transfers boosted salaries and appetite for credit.

CEE SNAPSHOT AT MARKETS 1601 CET

CURRENCI ES

Latest Previous Daily Change bid close change in 2018 Czech <EURCZK= 25.4220 25.3760 -0.18% +0.47% crown > Hungary <EURHUF= 314.0000 313.6300 -0.12% -0.98% forint > Polish <EURPLN= 4.1707 4.1708 +0.00% +0.14% zloty > Romanian <EURRON= 4.6575 4.6578 +0.01% +0.48% leu > Croatian <EURHRK= 7.4450 7.4535 +0.11% -0.20% kuna > Serbian <EURRSD= 117.9700 118.0600 +0.08% +0.45% dinar > Note: calculated from 1800 CET

daily change

Latest Previous Daily Change close change in 2018 Prague 1106.66 1101.470 +0.47% +2.64%

0

Budapest 38315.02 38620.84 -0.79% -2.70% Warsaw 2417.55 2408.63 +0.37% -1.77% Bucharest 8393.92 8379.01 +0.18% +8.26% Ljubljana <.SBITOP 810.62 809.46 +0.14% +0.53% > Zagreb 1821.82 1828.95 -0.39% -1.14% Belgrade <.BELEX1 752.24 753.76 -0.20% -0.99%

5>

Sofia 687.57 686.16 +0.21% +1.49%

BONDS

Yield Yield Spread Daily (bid) change vs Bund change

in

Czech spread

Republic

2-year <CZ2YT=R 0.6490 0.0550 +117bps +4bps

R>

5-year <CZ5YT=R 1.2670 0.0040 +122bps -1bps

R>

10-year <CZ10YT= 1.9210 0.0090 +125bps -1bps

RR> Poland

2-year <PL2YT=R 1.6640 -0.0010 +218bps -1bps

R>

5-year <PL5YT=R 2.6450 -0.0150 +260bps -3bps

R>

10-year <PL10YT= 3.3830 -0.0130 +271bps -3bps

RR>

FORWARD RATE AGREEMEN

T

3x6 6x9 9x12 3M

interban k

Czech Rep 0.98 1.09 1.25 0.91

<PRIBOR=

>

Hungary 0.08 0.10 0.19 0.02 Poland 1.75 1.77 1.86 1.72

Note: FRA are for ask prices quotes

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(Additional reporting by Jason Hovet in Prague Editing by John Stonestreet and Hugh Lawson)