CEE MARKETS-Hungarian bond yields hit 8-month low on CPI decline

* Hungarian Dec CPI drops below forecasts, central bank target

* Hungarian bond yields hit 8-month low, Polish yields at multi-year lows

* Core inflation rise to come under increasing scrutiny -analysts

* Bucharest stocks hit new 2-year low on tax worries

BUDAPEST, Jan 15 (Reuters) - Hungarian government bond yields fell further to their lowest levels in about 8 months on Tuesday after local and Slovak data confirmed that inflation fell even more than expected in December across Central Europe. International sentiment was supportive to bonds. Figures in Germany, the region's main export market, showed the weakest annual economic growth in 5 years at 1.5 percent in 2018. The 10-year Bund yield dropped about 3 basis points to almost 0.2 percent, and its Polish peer tracked it, shedding 5 basis points to 2.6705 percent, its lowest level since August 2016. The corresponding Hungarian yield traded at 2.68 percent, down 10 basis points from Monday's fixing, after December data showed a fall in annual inflation from 3.1 percent in November to 2.7 percent, below analysts' 3 percent forecast in a poll. Neighboring Slovakia also posted inflation figures below expectations on Tuesday, just as Czech and Polish data released earlier showed. Poland's headline inflation, at 1.1 percent, is well below the middle of the central bank's 1.5-3.5 percent goal. Hungary's figure also came in below the central bank's 3 percent long-term goal. A decline in crude prices has helped inflation retreat in the past months, and coupled with weakening expectations for Federal Reserve rate hikes, has led to a slump in government bond yields in Central Europe. Hungary's 10-year yield has declined by 124 basis points since a peak in early October, while corresponding Polish paper shed 65 basis points. Years of wage rises in the region, however, have started to feed into an increase in core inflation, including the price of services and processed food. That trend will be increasingly monitored in Hungary, where core inflation adjusted for the effects of indirect taxes, the central bank's (NBH) closely-watched measure, rose to 2.9 percent in December from 2.7 percent in November, analysts said. "Currently, the headline figure steals the show in the market, but analysts are obviously deep into gauging both headline and core figures," one Budapest-based trader said. ING analyst Peter Virovacz said in a note that core inflation could exceed 3 percent in January and stay above that level in 2019. "All that could encourage the NBH to start a normalization of monetary policy (tightening) in the foreseeable future," he said. In other markets, Romanian shares continued to plunge, shedding almost 2 percent by 1041 GMT, hitting a new 2-year low. They have been knocked down by worries over 2019 tax increases on the bank and energy sectors.

CEE SNAPSHOT AT MARKETS 1141 CET

CURRENCI ES

Latest Previous Daily Change bid close change in 2019 Czech <EURCZK= 25.5590 25.5600 +0.00% +0.58% crown > Hungary <EURHUF= 321.8500 321.7100 -0.04% -0.24% forint > Polish <EURPLN= 4.2908 4.2915 +0.02% -0.03% zloty > Romanian <EURRON= 4.6835 4.6812 -0.05% -0.63% leu > Croatian <EURHRK= 7.4300 7.4348 +0.06% -0.27% kuna > Serbian <EURRSD= 118.4000 118.4000 +0.00% -0.08% dinar > Note: calculated from 1800 CET

daily change

Latest Previous Daily Change close change in 2019 Prague 1002.81 1001.150 +0.17% +1.65%

0

Budapest 40606.96 40667.65 -0.15% +3.75% Warsaw 2332.63 2327.66 +0.21% +2.46% Bucharest 6804.32 6934.35 -1.88% -7.85% Ljubljana <.SBITOP 813.22 811.10 +0.26% +1.11% > Zagreb 1738.97 1734.34 +0.27% -0.56% Belgrade <.BELEX1 696.23 693.40 +0.41% -8.59%

5>

Sofia 566.04 568.05 -0.35% -4.78%

BONDS

Yield Yield Spread Daily (bid) change vs Bund change

in

Czech spread

Republic

2-year <CZ2YT=R 1.8660 0.1710 +247bps +18bps

R>

5-year <CZ5YT=R 1.7040 -0.0290 +206bps -1bps

R>

10-year <CZ10YT= 1.8350 -0.0180 +163bps +1bps

RR> Poland

2-year <PL2YT=R 1.3090 -0.0240 +191bps -2bps

R>

5-year <PL5YT=R 2.1190 -0.0420 +247bps -2bps

R>

10-year <PL10YT= 2.6680 -0.0670 +247bps -4bps

RR>

FORWARD RATE AGREEMEN

T

3x6 6x9 9x12 3M

interban k

Czech Rep 2.15 2.19 2.20 2.01

<PRIBOR=

>

Hungary 0.26 0.51 0.63 0.13 Poland 1.73 1.71 1.66 1.72

Note: FRA are for ask prices quotes

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(Reporting by Sandor Peto; editing by David Evans)