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CEE MARKETS-Zloty eases ahead of Fed, output growth below forecasts

* Zloty leads mild CEE fx easing ahead of likely Fed rate hike

* Polish industrial output rises less than forecast, PPI drops

* Czech central banker sees rate hikes to continue

* Shares of OTP Bank fall, Romania blocks its acquisition deal

BUDAPEST/WARSAW, March 19 (Reuters) - The zloty eased on Monday after weaker-than expected February manufacturing growth and a fall in producer prices underpinned that Polish interest rates could stay at record lows this year. Low rates in Central Europe's flagship economy contrast with an expected further hike in Federal Reserve interest rates, and likely hawkish comments at its March 20-21 meeting. Rising U.S. rates make assets in Poland and elsewhere in the region relatively less attractive. In a Reuters poll this month, analysts projected gains for the Czech crown, the forint and the zloty in the next 12 months, fueled by robust economic growth and expected monetary tightening to fight rebounding inflation. But since then, most of the region's countries reported a retreat in inflation for February. The Polish central bank also lowered its inflation forecasts two weeks ago. February annual figures released on Monday showed that annual industrial output growth remained strong, at 7.4 percent, but below analysts' median forecast of 8.1 percent, while the producer price index fell 0.2 percent. The zloty touched a new 3-month low against the euro, and at 0926 GMT it traded at 4.22, down 0.13 percent, easing more then other regional currencies. Any impact on the zloty from the figures could be limited as they did not change monetary policy prospects, said Andrzej Kaminski, economist at Millennium Bank. "In our view, due to rising labor costs, the MPC (Monetary Policy Council) will raise the cost of money in the second half of 2019, as wages and inflation will be growing faster than assumed in the (central bank's) projection," he said. The crown eased only a shade, to 25.4230, still off last week's two-month lows of 25.5. Czech inflation also retreated in February, but Czech central bank governor Jiri Rusnok has said there was still room to raise interest rates further. On Sunday he said a hike could come late this year or in early 2019, or earlier if inflation becomes brisker.

The region's central banks diverge in monetary policy. Serbia's central bank cut rates last week to stem a firming of the dinar. The currency bucked the regional trend on Monday, gaining a quarter of a percent to 118.11 versus the euro, after Serbia confirmed its interest in a new deal with the International Monetary Fund on Friday. Stocks mostly eased in the region, led by Budapest, knocked lower by a retreat of OTP Bank from a one-month high after Romania's central bank torpedoed OTP's takeover of Banca Romaneasca.

CEE SNAPSHOT AT MARKETS 1026 CET

CURRENCI ES

Latest Previous Daily Change bid close change in 2018 Czech <EURCZK= 25.4230 25.4200 -0.01% +0.47%

crown

Hungary <EURHUF= 310.9500 310.7200 -0.07% -0.01% forint > Polish <EURPLN= 4.2200 4.2145 -0.13% -1.03% zloty > Romanian <EURRON= 4.6670 4.6650 -0.04% +0.27% leu > Croatian <EURHRK= 7.4290 7.4325 +0.05% +0.02% kuna > Serbian <EURRSD= 118.1100 118.4100 +0.25% +0.33% dinar > Note: calculated from 1800 CET

daily change

Latest Previous Daily Change close change in 2018 Prague 1118.38 1118.520 -0.01% +3.73%

0

Budapest 38539.66 38891.24 -0.90% -2.13% Warsaw 2269.78 2285.08 -0.67% -7.78% Bucharest 8780.79 8816.96 -0.41% +13.25% Ljubljana <.SBITOP 825.09 823.14 +0.24% +2.32% > Zagreb 1841.53 1843.11 -0.09% -0.07% Belgrade <.BELEX1 749.71 748.78 +0.12% -1.33%

5>

Sofia 677.31 679.98 -0.39% -0.02%

BONDS

Yield Yield Spread Daily (bid) change vs Bund change

in

Czech spread

Republic

2-year <CZ2YT=R 0.8810 0.0860 +146bps +9bps

R>

5-year <CZ5YT=R 1.3190 0.0480 +135bps +4bps

R>

10-year <CZ10YT= 1.9440 0.0140 +137bps +1bps

RR> Poland

2-year <PL2YT=R 1.5250 0.0040 +211bps +1bps

R>

5-year <PL5YT=R 2.4100 -0.0050 +244bps -1bps

R>

10-year <PL10YT= 3.2520 0.0010 +268bps -1bps

RR>

FORWARD RATE AGREEMEN

T

3x6 6x9 9x12 3M

interban k

Czech Rep 0.96 1.06 1.22 0.90

<PRIBOR=

>

Hungary 0.07 0.10 0.18 0.03 Poland 1.71 1.74 1.76 1.70

Note: FRA are for ask prices quotes

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(Reporting by Sandor Peto, editing by Ed Osmond)