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CEE MARKETS-Dollar rally hits asset prices, Hungary's bonds draw strong demand

demand@

* Dollar bulls send CEE currencies, equities lower

* Politics more uncertain, but Hungary's bonds draw demand

* EU lawmakers support punishing Poland over rule of law

* Polish assets ease due to global factors - analyst

(Recasts with Hungarian bond auction, European Parliament vote on Poland) BUDAPEST, March 1 (Reuters) - Central European currencies and Hungarian government bonds eased on Thursday as international sentiment soured and political uncertainty increased ahead of Hungary's April parliamentary election. The European Parliament voted to support an unprecedented procedure to punish Poland's judiciary reform and other measures the European Commission has said undermined the rule of law.

The zloty eased more than regional peers, weakening 0.3 percent against the euro by 1344 GMT, and Warsaw's bluechip stock index led a decline in most of the region, shedding one percent. The currency's weakness was caused by flows into the dollar and equities tracked a fall of peers in Wall Street, Asia and Frankfurt, market participants said. The EU lawmakers' vote did not have any significant impact, they said. "For some time the market is calm regarding this issue because the risk of sanctions is minimal," said Bank Pekao senior economist Adam Antoniak. February PMI manufacturing indices released in Budapest, Prague and Warsaw showed some retreat from high January levels, but still indicated healthy economic growth. Hungarian government bond yields rose by a few basis points and their curve steepened at an auction. But demand for the issues was solid, supported by an interest rate swap auction by the Hungarian central bank (NBH), which provided commercial banks with cheap long-term financing.

The forint steadied after the auction, rebounding from an earlier weakening, though trading at 313.75 it stayed near one-and-1/2-year lows beyond 315.26. It has eased almost one percent so far this year, underperforming regional peers as the NBH's loose policy stands in contrast with a rise in U.S. interest rates and hawkish signals on Wednesday from the Federal Reserve. "The international market sentiment has become more uncertain and that weighs on currencies (and equities) in the region," said Orsolya Nyeste, Budapest-based analyst of Erste group. Domestic politics is also a factor that may have worsened sentiment, one fixed income trader said. Prime Minister Viktor Orban's ruling Fidesz party lost the mayor's seat in its stronghold southern city of Hodmezovasarhely in a surprise by-election result on Sunday, ahead of the parliamentary election on April 8. Fidesz has a firm lead in opinion polls, but the government may spend more now to ensure victory, the trader said.

CEE SNAPSHOT AT MARKETS 1444 CET

CURRENCI ES

Latest Previous Daily Change bid close change in 2018 Czech <EURCZK= 25.4270 25.4070 -0.08% +0.45% crown > Hungary <EURHUF= 313.7500 313.7700 +0.01% -0.90% forint > Polish <EURPLN= 4.1853 4.1740 -0.27% -0.21% zloty > Romanian <EURRON= 4.6580 4.6557 -0.05% +0.47% leu > Croatian <EURHRK= 7.4460 7.4505 +0.06% -0.21% kuna > Serbian <EURRSD= 117.9200 117.9300 +0.01% +0.49% dinar > Note: calculated from 1800 CET

daily change

Latest Previous Daily Change close change in 2018 Prague 1122.52 1120.470 +0.18% +4.11%

0

Budapest 38147.20 38112.00 +0.09% -3.12% Warsaw 2341.29 2364.32 -0.97% -4.87% Bucharest 8419.92 8452.41 -0.38% +8.59% Ljubljana <.SBITOP 811.20 817.82 -0.81% +0.60% > Zagreb 1849.95 1839.46 +0.57% +0.38% Belgrade <.BELEX1 750.66 751.04 -0.05% -1.20%

5>

Sofia 686.36 686.43 -0.01% +1.32%

BONDS

Yield Yield Spread Daily (bid) change vs Bund change

in

Czech spread

Republic

2-year <CZ2YT=R 0.7160 0.0800 +126bps +10bps

R>

5-year <CZ5YT=R 1.2570 -0.0060 +125bps +1bps

R>

10-year <CZ10YT= 1.9220 -0.0030 +129bps +2bps

RR> Poland

2-year <PL2YT=R 1.6380 -0.0230 +219bps +0bps

R>

5-year <PL5YT=R 2.5640 -0.0400 +255bps -2bps

R>

10-year <PL10YT= 3.2870 -0.0630 +265bps -4bps

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 0.11 0.19 0.02 Poland 1.75 1.78 1.84 1.72

Note: FRA are for ask prices quotes

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(Reporting by Sandor Peto; Editing by Janet Lawrence)