CEE MARKETS-Inflation fall weakens currencies, lifts bonds

    * Hungarian, Romanian inflation falls below forecasts
    * Declining CPIs put pressure on currencies, bond yields
    * Romania's two-year bond yield is lowest since May

    By Sandor Peto
    BUDAPEST, Dec 11 (Reuters) - Central European currencies
mostly weakened and government bonds gained after Hungary and
Romania reported lower-than-projected inflation, raising the
prospect of less monetary policy tightening in the region.
    Turmoil over Britain's European Union exit and caution ahead
of the European Central Bank's meeting on Thursday kept a lid on
activity in markets.
    The forint got stuck near its 100-day moving
average of 323.4 per euro, little changed from Monday, after the
statistics office reported annual inflation slowed to 3.1
percent in November from October's 3.8 percent.    
    The figure, the lowest since June, was below analysts' 3.5
percent forecast.
    Romanian inflation, also released on Tuesday, fell to 3.4
percent, dropping to this year's lowest level from 4.3 percent
in October. Forecasts had been for 3.7 percent.
    "The Fed and the ECB also seem to turn towards not
tightening policy -- we (in Hungary) can forget any rate hike
for years now," one Budapest-based currency dealer said.
    The Hungarian central bank is widely expected to leave
interest rates unchanged at its meeting next week, but some
market participants see forint liquidity in interbank markets
tightening and short-term market interest rates rising
slowly next year.
    Views remain split over the future course of Hungarian
rates. Some underlying indicators, like a pick-up in services
and durable consumer goods inflation, still point towards 
monetary tightening, ING analyst Peter Virovacz said in a note.
    Core inflation, excluding food and fuel prices,
was steady at 2.6 percent, below the National Bank of Hungary's
3 percent target.
    A retreat in global crude prices in the past two months has
reduced inflation rates and pressure on currencies and
government debt prices in Central Europe's fast-growing
    Polish inflation, reported earlier, was also below
expectations. The zloty fell 0.1 percent against the
euro, testing the 4.3 line. 
    Poland's 10-year bond yields struggled to break through 3
percent. Hungarian and Romanian yields dropped further.
    Romania's two-year benchmark yield dropped 3
basis points to 3.44 percent, the lowest since May, after a
tender of two-year debt drew healthy demand on Monday.
    "The below-expectations inflation data for November could
re-ignite the buying spree for Romanian government bonds,"
Bucharest-based ING analyst Ciprian Dascalu said in a note.
    Regional stock markets were mixed. A 2.7 percent gain by OTP
Bank shares helped Budapest's main index rise
1.4 percent. Prague shed 1.2 percent, mainly because of a
fall in Austrian-Based Erste bank's shares.
            CEE       SNAPSHOT   AT                         
            MARKETS             1047 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.8550   25.8510    -0.02%    -1.21%
 crown      >                                       
 Hungary    <EURHUF=  323.5000  323.5600    +0.02%    -3.89%
 forint     >                                       
 Polish     <EURPLN=    4.2989    4.2939    -0.12%    -2.85%
 zloty      >                                       
 Romanian   <EURRON=    4.6530    4.6512    -0.04%    +0.57%
 leu        >                                       
 Croatian   <EURHRK=    7.3850    7.3875    +0.03%    +0.61%
 kuna       >                                       
 Serbian    <EURRSD=  118.3000  118.3200    +0.02%    +0.17%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1017.85  1029.110    -1.09%    -5.59%
 Budapest             39770.31  39238.44    +1.36%    +1.00%
 Warsaw                2236.27   2242.10    -0.26%    -9.14%
 Bucharest             8579.33   8558.55    +0.24%   +10.65%
 Ljubljana  <.SBITOP    806.35    806.13    +0.03%    -0.00%
 Zagreb                1711.09   1705.20    +0.35%    -7.15%
 Belgrade   <.BELEX1    744.75    741.41    +0.45%    -1.98%
 Sofia                  591.92    593.16    -0.21%   -12.63%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.6000   -0.0200   +217bps     -3bps
   5-year   <CZ5YT=R    1.7810    0.0140   +203bps     -1bps
   10-year  <CZ10YT=    2.0180   -0.0150   +175bps     -5bps
   2-year   <PL2YT=R    1.5450   -0.0130   +211bps     -3bps
   5-year   <PL5YT=R    2.4520    0.0060   +270bps     -2bps
   10-year  <PL10YT=    3.0130    0.0030   +274bps     -3bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.13      2.23      2.27      2.01
 Hungary                  0.30      0.54      0.84      0.13
 Poland                   1.75      1.78      1.78      1.72
 Note: FRA  are for ask prices                              
 (Additional reporting by Radu Marinas in Bucharest, editing by
Larry King)

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