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CEE MARKETS-Bucharest stocks approach 2-year lows on tax worry

Sandor Peto and Radu-Sorin Marinas

* Bucharest stocks fall 2.2 pct before partial recovery

* New taxes weigh on the outlook of Romanian stocks

* Romanian inflation retreats further as expected

BUDAPEST/BUCHAREST, Jan 14 (Reuters) - Romanian stocks fell as much as 2.2 percent on Monday, approaching 2-year lows as concerns over 2019 tax increases on the bank and energy sectors have returned. Sentiment in Central Europe turned sour anyway as a surprise fall in China's exports turned the highlight on global economic slowdown concerns again, hitting Asian and European stocks. Bucharest's blue-chip index got within a one-percent distance from its pre-Christmas 2-year lows reached after the government announced plans for changes in tax and pensions rules. The measures included a tax on bank assets, in an unconventional way linked to interbank rates which are also in the focus of monetary policy. Some details of its application remain unclear. The measures are unlikely to keep the budget deficit below the European Union's threshold, 3 percent of economic output, and creating uncertainty in the business environment may make a slowdown in economic growth bigger, analysts said. "Should foreign banks curb lending, as happened in Hungary for instance (in the early 2010s), the adverse impact on the cycle might well offset some of these (government) revenue gains," Morgan Stanley analysts said in a note. Late on Friday, the European Commission also warned Romania, which holds the EU's rotating presidency, over the government's plans to decriminalise some forms of corruption. Bucharest's stock index halved its initial loss to 1.1 percent by 0936 GMT. Budapest's blue-chip index fell at the same rate, retreating from a one-year high reached last week. The drop in Romania was led by an over 2 percent decline in the shares of Banca Transilvania, one of the country's biggest lenders. The leu shrugged off a continuing fall in Romania's annual inflation to 3.3 percent in December from 3.4 percent in November. The drop from levels above 5 percent last year to within the central bank's 1.5-3.5 percent target range increases the chance that the bank will not increase its interest rates further, analysts said. "There are risks on the rise that Romanian rate setters would not resume rate hikes (on the one hand due to banking tax, on the other hand due to ECB postponement risks)," Raiffeisen analyst Stephan Imre said in a note. With the Romanian disinflation process bottoming out, the country's bonds could start to reverse the past weeks' sharp decline in regional bond yields, he said. An auction of 2023-expiry Romanian bonds could still create demand around secondary market bids of 4.37 percent as the bond's tenor is in demand from a broad range of investors, ING analysts said in a note.

CEE SNAPSHOT ATMARKETS 1036 CET

CURRENCI ES

Latest Previous Daily Changebid close change in 2019Czech <EURCZK= 25.5600 25.5660 +0.02% +0.58%crown >Hungary <EURHUF= 321.2000 321.4000 +0.06% -0.04%forint >Polish <EURPLN= 4.2948 4.2938 -0.02% -0.12%zloty >Romanian <EURRON= 4.6785 4.6830 +0.10% -0.52%leu >Croatian <EURHRK= 7.4350 7.4312 -0.05% -0.34%kuna >Serbian <EURRSD= 118.3000 118.4300 +0.11% +0.00%dinar >Note: calculated from 1800 CET

daily change

Latest Previous Daily Changeclose change in 2019Prague 1007.42 1011.440 -0.40% +2.11%

0

Budapest 40441.43 40886.06 -1.09% +3.33%Warsaw 2329.24 2335.10 -0.25% +2.31%Bucharest 7162.05 7240.73 -1.09% -3.00%Ljubljana <.SBITOP 808.50 803.83 +0.58% +0.53%>Zagreb 1736.86 1734.51 +0.14% -0.68%Belgrade <.BELEX1 696.20 702.40 -0.88% -8.60%

5>

Sofia 568.54 567.46 +0.19% -4.36%

BONDS

Yield Yield Spread Daily(bid) change vs Bund change

in

Czech spread

Republic

2-year <CZ2YT=R 1.7070 0.0090 +230bps +1bps

R>

5-year <CZ5YT=R 1.7310 -0.0040 +207bps +1bps

R>

10-year <CZ10YT= 1.8370 -0.0170 +162bps +0bps

RR> Poland

2-year <PL2YT=R 1.3420 -0.0250 +193bps -2bps

R>

5-year <PL5YT=R 2.1700 -0.0250 +250bps -1bps

R>

10-year <PL10YT= 2.7460 -0.0100 +253bps +1bps

RR>

FORWARD RATE AGREEMEN

T

3x6 6x9 9x12 3M

interban k

Czech Rep 2.14 2.18 2.20 2.01

<PRIBOR=

>

Hungary 0.25 0.46 0.68 0.13Poland 1.73 1.73 1.73 1.72

Note: FRA are for ask prices quotes

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(Reporting by Sandor Peto, editing by Ed Osmond)