October 11, 2017 / 1:57 PM / a year ago

CEE MARKETS-Leu misses firming on CPI jump, Warsaw stocks test multi-year high

    * Continuing dollar slide fuels forint, zloty, stocks
    * Sept CPI surge, politics keep lid on Romanian assets
    * Romanian central bank seen narrowing interest rate

 (Adds rise in Polish stocks, new comments on Romanian interest
    By Sandor Peto and Luiza Ilie
    BUDAPEST/BUCHAREST, Oct 11 (Reuters) - Romania bucked a rise
in Central European assets on Wednesday due to worries over a
bigger-than-expected jump in its inflation rate and tension over
a planned government reshuffle.
    The region's most liquid currencies, the zloty and
the forint, firmed 0.3 percent against the euro,
extending this week's gains fuelled by money flowing out of the
weakening dollar.
    Warsaw shares rose one percent. The index hit a
5-week high, a touch from its highest since mid-2015.
    The stocks are buoyed by technical factors and expectations
for strong economic growth in the rest of the year, 4.4 percent
in annual terms according to a recent Reuters poll. Plans for a
power market law would help finance the construction of power
stations and boost energy stocks, traders said.            
    If expectations for Federal Reserve interest rate hikes push
the dollar into an uptrend later this year, that "may worsen the
investment climate on the Polish stock market and other emerging
 markets," BZ WBK brokerage trader Pawel Kubiak said.    
    The leu, after a rise earlier this month amid a liquidity
squeeze in Romanian markets, has missed the rise elsewhere in
the region, just like Romanian stocks and government bonds.
    Prime Minister Mihai Tudose announced on Monday that he was
considering a cabinet reshuffle due to corruption allegations
against three ministers, a move that could sow tension within
the ruling Social Democrat party.
    September figures released early on Wednesday showed a
continuing rise in Romanian annual inflation to a higher-than
expected 1.8 percent from 1.2 percent in August.
    "No place to hide from a (central bank interest rate) hike,"
Bucharest-based Erste Group economist Horia Braun-Erdei said in
a note. "We pencil in two policy rate hikes at the beginning of
2018, on top of the likely narrowing of the interest rate
corridor in November."
    An expected rise in government spending later this year
could help ease the liquidity squeeze, for which the government
has criticized the NBR, but could increase worries about a rise
in inflation pressure and the budget deficit.
    "A tightening of the fiscal stance would be desirable, as it
would reduce the need for rate hikes that may prove costly...,"
Braun-Erdei said. 
    The bank, fearing speculative capital flows, has said
signals from the European Central Bank and the Polish central
bank (NBP) could influence local decisions.
    While the ECB hesitates, the NBP is unlikely to lift rates
any time soon, though a surge in forward rate agreements this
month priced in a start of rate hikes within 12
months. Most analysts have projected a later rise.
               CEE MARKETS  SNAPSH   AT  1523 CET         
                            Latest  Previo  Daily   Change
                            bid     close   change  in
 Czech crown                25.885  25.869  -0.06%   4.33%
                                 0       5          
 Hungary                    309.79  310.65   +0.28  -0.31%
 forint                         00      00       %  
 Polish zloty               4.2802  4.2926   +0.29   2.89%
 Romanian leu               4.5865  4.5860  -0.01%  -1.12%
 Croatian                   7.5100  7.5025  -0.10%   0.60%
 Serbian                    119.45  119.43  -0.02%   3.26%
 dinar                          00      00          
 Note: daily   calculated   previo  close   1800          
 change        from         us      at      CET     
                            Latest  Previo  Daily   Change
                                    close   change  in
 Prague                     1050.5  1050.0   +0.05   +13.9
                                 6       6       %      9%
 Budapest                   38237.  38031.   +0.54   +19.4
                                03      67       %      8%
 Warsaw                     2540.5  2516.4   +0.95   +30.4
                                 2       9       %      2%
 Bucharest                  7995.0  8022.5  -0.34%   +12.8
                                 8       1              4%
 Ljubljana                  814.90  812.39   +0.31   +13.5
                                                 %      6%
 Zagreb                     1845.8  1820.6   +1.38  -7.47%
                                 7       6       %  
 Belgrade                   726.96  727.23  -0.04%   +1.34
 Sofia                      672.37  676.26  -0.58%   +14.6
                            Yield   Yield   Spread  Daily
                            (bid)   change  vs      change
                                            Bund    in
 Czech                                              spread
   2-year                    0.057   0.119   +075b   +12bp
                                                ps       s
   5-year                     0.52   0.027   +078b   +2bps
   10-year                   1.367   0.025   +091b   +1bps
   2-year                    1.732  -0.024   +242b   -3bps
   5-year                     2.71  -0.019   +297b   -3bps
   10-year                    3.42  -0.033   +296b   -4bps
               FORWARD      RATE    AGREEMENT             
                            3x6     6x9     9x12    3M
 Czech Rep             <PR    0.75     0.9    1.01       0
 Hungary               <BU    0.09    0.11    0.19    0.03
 Poland                <WI   1.766    1.81   1.877    1.73
 Note: FRA     are for ask                                
 quotes        prices                               

 (Additional reporting by Jason Hovet in Prague/Marcin Goettig
in Warsaw; editing by Mark Heinrich)
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