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CEE MARKETS-Dinar eases as Serbian central bank cuts rates, crown firms

* Serbia cuts rates, surprising some investors

* Dinar eases, but still near multi-year highs

* Czech central bank chief says CPI trends still allow rate hikes

* Hungary's government bond auction draws robust demand

(Recasts with Serbian central bank's interest rate cut, Hungary's bond auction) BUDAPEST/BELGRADE, March 14 (Reuters) - The dinar eased on Wednesday as Serbia's central bank (SRB) cut its benchmark rate to help economic growth after data showed a retreat in inflation in most of Central Europe. The 25 basis point reduction leaves its benchmark interest rate, now 3.25 percent, the highest in the region. The bank said it would remain cautious because the U.S. Federal Reserve might increase interest rates next week, cutting appetite for assets in emerging markets like Serbia.

Serbia's bank has been selling the dinar in recent weeks as robust demand for Serbian government bond auctions helped the currency hit 3-1/2 year highs against the euro. But some other currencies in the region were under pressure as inflation dropped last month, triggering expectations for slower central bank rate hikes in Prague and a delay in tightening in Warsaw. Monday's Serbian data, showing a fall in annual inflation to 1.5 percent in February from January's 1.9 percent, boosted the odds of a rate cut compared to a Reuters poll last week, in which only one-third of analysts projected a reduction. After the bank delivered the cut, the dinar traded at 128.40 versus the euro, weaker by 0.1 percent. But one Belgrade-based dealer said the rate reduction could boost confidence in Serbian assets instead of making them less attractive. "It will likely bolster the dinar's exchange rate to euro, following a brief weakening this week. This means there's still ample room for rate cuts," the dealer added. Yields on Serbia's two-year and 10-year government bonds were bid lower by 25-30 basis points. Elsewhere in Central Europe, the Czech crown firmed slightly, gaining 0.2 percent against the euro, to 25.45. Czech inflation also retreated in February, but CNB chief Rusnok said on Wednesday that inflation developments created room for further interest rate rises, although loose European Central Bank policy was a limiting factor. Regional currencies and stocks were mostly rangebound, as the dollar's zigzags maintained uncertainty over risk appetite. Hungary's government bonds drew healthy demand at an auction and the government sold more papers than planned.

Hungarian bond yields dropped 2-3 basis points from Tuesday. "Earlier investors priced in a very slight chance that the ruling (Fidesz) party might lose the elections, but buyers are coming back now," one Budapest-based fixed income trader said. Hungary will hold a vote on April 8.

CEE SNAPSHOT AT MARKETS 1239 CET

CURRENCI ES

Latest Previous Daily Change bid close change in 2018 Czech <EURCZK= 25.4750 25.4910 +0.06% +0.26% crown > Hungary <EURHUF= 311.8200 311.8000 -0.01% -0.29% forint > Polish <EURPLN= 4.2081 4.2120 +0.09% -0.75%

zloty

Romanian <EURRON= 4.6625 4.6610 -0.03% +0.37% leu > Croatian <EURHRK= 7.4440 7.4400 -0.05% -0.18% kuna > Serbian <EURRSD= 118.4000 118.3200 -0.07% +0.08% dinar > Note: calculated from 1800 CET

daily change

Latest Previous Daily Change close change in 2018 Prague 1122.39 1124.410 -0.18% +4.10%

0

Budapest 38791.51 38663.67 +0.33% -1.49% Warsaw 2348.19 2353.02 -0.21% -4.59% Bucharest 8618.06 8608.30 +0.11% +11.15% Ljubljana <.SBITOP 823.57 824.29 -0.09% +2.13% > Zagreb 1841.02 1849.65 -0.47% -0.10% Belgrade <.BELEX1 741.27 741.81 -0.07% -2.44%

5>

Sofia 676.86 679.82 -0.44% -0.09%

BONDS

Yield Yield Spread Daily (bid) change vs Bund change

in

Czech spread

Republic

2-year <CZ2YT=R 0.8300 0.0740 +139bps +8bps

R>

5-year <CZ5YT=R 1.3040 0.0350 +131bps +4bps

R>

10-year <CZ10YT= 1.9160 -0.0070 +129bps -1bps

RR> Poland

2-year <PL2YT=R 1.5580 -0.0100 +212bps -1bps

R>

5-year <PL5YT=R 2.5100 -0.0060 +251bps +0bps

R>

10-year <PL10YT= 3.3390 -0.0100 +271bps -2bps

RR>

FORWARD RATE AGREEMEN

T

3x6 6x9 9x12 3M

interban k

Czech Rep 0.95 1.06 1.22 0.90

<PRIBOR=

>

Hungary 0.07 0.10 0.18 0.03 Poland 1.73 1.75 1.81 1.71

Note: FRA are for ask prices quotes

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(Reporting by Sandor Peto Editing by Peter Graff and Edmund Blair)