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CEE MARKETS-Leu eases though CPI remains high; bonds mostly firm

this week.

* Currencies fall in profit-taking after rally

* Romania's May inflation is higher than expected

* Romanian central bank could tighten leu liquidity

* Czech bond auction is seen drawing solid demand

BUDAPEST, June 12 (Reuters) - Central European currencies and stocks mostly fell as risk aversion increased amid the threat of the U.S.-China trade war and the approach of U.S. inflation data. The leu failed to benefit from higher-than-expected May inflation. The crown also weakened after Tuesday's Czech inflation data showed a pick-up, and was steady on Wednesday. The region's main currencies rose to multi-week or multi-month highs against the euro in recent weeks as expectations for Federal Reserve interest rate cuts led to a selling of the dollar. But the dollar's weakening slowed The forint fell 0.2% against the euro on Wednesday, to trade at 321.76 at 0828. The zloty and the leu shed 0.1%, with the latter remaining near five-month highs, trading at 4.724. "This easing is not big, and following the past weeks' surge, it is normal," one Budapest-based dealer said. Romania's annual inflation was steady at 4.1% percent in May, above the central bank's 1.5% to 3.5% target range and forecasts. Inflation could retreat somewhat by the year-end. But the central bank will need to fight high core inflation, using its variable rate tenders to stem a likely rise in liquidity in leu markets in coming months, ING Bank said in a note. "Given the global context, the probability for rate hikes ... is very low," the note said. Romanian bonds were mixed, with the yield on two-year debt bid lower by 6 basis points at 3.45% and the 10-year yield rising 9 basis points to 4.75%. Expected Fed rate cuts and continuing loose monetary policy in the euro zone also fueled uncertainty over Czech interest rates. Czech forward rate agreements price in rate cuts, but some analysts believe the Czech central bank's next move will be its ninth rate increase since 2017, to fight inflation. Czech government bonds with 2016 and 2033 expiry offered at an auction on Wednesday are expected to draw solid demand because supply can dry up in the summer, Komercni Banka traders said in a note. A drop in primary supply is also a risk in Hungary, which sold 529 billion forints ($1.87 billion) worth of a new high-yield retail savings bond in a week, the biggest weekly outflow ever recorded. "The debt agency AKK will want to see how it goes in the next weeks, and if they change financing policy, more FX bond repurchases is one of the options," one Budapest-based bond trader said. Hungarian government bond yields dropped 2 to 3 basis points, tracking Bunds, with the 10-year bond trading around 2.81%.

CEE SNAPSHOT ATMARKETS 1028 CET

CURRENCI ES

Latest Previous Daily Changebid close change in 2019Czech <EURCZK= 25.6210 25.6240 +0.01% +0.34%crown >Hungary <EURHUF= 321.7600 321.0500 -0.22% -0.21%forint >Polish <EURPLN= 4.2650 4.2628 -0.05% +0.58%zloty >Romanian <EURRON= 4.7240 4.7201 -0.08% -1.48%leu >Croatian <EURHRK= 7.4100 7.4135 +0.05% +0.00%kuna >Serbian <EURRSD= 117.9000 118.0100 +0.09% +0.34%dinar >Note: calculated from 1800 CET

daily change

Latest Previous Daily Changeclose change in 2019Prague 1056.68 1061.890 -0.49% +7.11%

0

Budapest 40866.35 41234.66 -0.89% +4.41%Warsaw 2281.60 2295.60 -0.61% +0.22%Bucharest 8659.65 8633.12 +0.31% +17.28%Ljubljana <.SBITOP 871.28 871.97 -0.08% +8.33%>Zagreb 1922.65 1910.46 +0.64% +9.94%Belgrade <.BELEX1 732.31 731.70 +0.08% -3.86%

5>

Sofia 580.90 580.34 +0.10% -2.28%

BONDS

Yield Yield Spread Daily(bid) change vs Bund change

in

Czech spread

Republic

2-year <CZ2YT=R 1.7150 0.1400 +237bps +14bps

R>

5-year <CZ5YT=R 1.5230 -0.0080 +211bps -1bps

R>

10-year <CZ10YT= 1.6510 0.0050 +189bps +1bps

RR> Poland

2-year <PL2YT=R 1.6560 0.0020 +232bps +0bps

R>

5-year <PL5YT=R 2.0430 0.0060 +263bps +1bps

R>

10-year <PL10YT= 2.5390 -0.0100 +277bps -1bps

RR>

FORWARD RATE AGREEMEN

T

3x6 6x9 9x12 3M

interban k

Czech Rep 2.17 2.08 2.00 2.17

<PRIBOR=

>

Hungary 0.29 0.44 0.52 0.18Poland 1.74 1.73 1.73 1.72

Note: FRA are for ask prices quotes

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(Additional reporting by Radu Marinas in Bucharest, Jason Hovet in Prague and Alicja Ptak in Warsaw; editing by Larry King )