CEE MARKETS-Zloty falls on politics, Czech bill auction watched

    * Zloty near 3-month low vs euro, 5-month low vs forint
    * Tension with EU over judiciary reform weighs on zloty
    * Czech auction watched for clues over rate hike odds

    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, July 27 (Reuters) - The zloty eased on
Thursday, under pressure from political tension over Poland's
reforms of its judiciary, while more dovish than expected
comments from the U.S. Federal Reserve underpinned other Central
European currencies.
    The zloty traded near 3-month lows against the
euro and near 5-month lows against its regional peer, the forint
    It has been hit by bills passed by parliament to allow the
government to fire and appoint judges, which triggered street
protests and criticism from Brussels.
    Polish President Andrzej Duda signed only one of the three
bills and unexpectedly said he would veto the other two.
    But the European Commission said on Wednesday that it would
launch legal action against Poland over the reform which
undermines the independence of judges.
    The zloty traded at 4.2606 against the euro at 0805 GMT,
down by 0.16 percent. The forint, meanwhile, which is
a frequent regional trade against the Polish unit, firmed by
0.16 percent to 305.2 versus the euro.
    The political tension does not allow the zloty to strengthen
despite the region's good economic fundamentals, analysts said.
    "Increased political uncertainty stemming from the emergence
of the conflict between the president and the government in
Poland and fears about the effects of the EC actions against
Poland may weigh on the zloty... despite the dovish Fed," Bank
Zachodni WBK analysts said in a note.
    The Fed's comments cemented expectations that it will start
unwinding its massive bond holdings in September, but that might
lessen the need of rate hikes, therefore the dollar continued to
ease in its crosses.
    Central European government bond prices mostly reacted with
modest firming. 
    The Czech crown did not strengthen though,
remaining stuck to the weak side of the 26 line versus the euro.
    An auction of Czech Treasury bills on Thursday is being
watched with unusual attention as it may provide clues on
whether the Czech central bank will deliver its first rate hike
in over nine years at its meeting on Aug 3.
    Investors flooded markets with tens of billions of euros
before the Czech central bank abandoned a cap in April, betting
on crown strengthening once it was free.  
    Some analysts say this could be a factor in the central bank
opting for a rate hike as more than 150 billion crowns of
T-bills come due in August and September, and if foreign
investors exit those positions it would weaken the crown, posing
an upside risk to inflation. 
    Other analysts, though, see an increase in the Czech
Republic's weighting in JP Morgan indices earlier this year
helping keep foreign money in Prague. 
                CEE MARKETS  SNAPSH   AT  1005 CET         
                             Latest  Previo  Daily   Change
                             bid     close   change  in
 Czech crown                 26.018  26.024   +0.02   3.80%
                                  0       5       %  
 Hungary                     305.20  305.69   +0.16   1.19%
 forint                          00      00       %  
 Polish zloty                4.2606  4.2539  -0.16%   3.36%
 Romanian leu                4.5645  4.5642  -0.01%  -0.65%
 Croatian kuna               7.4140  7.4144   +0.01   1.90%
 Serbian dinar               120.33  120.42   +0.07   2.51%
                                 00      00       %  
 Note: daily    calculated   previo  close   1800          
 change         from         us      at      CET     
                             Latest  Previo  Daily   Change
                                     close   change  in
 Prague                      1014.0  1011.8   +0.21   +10.0
                                  2       5       %      3%
 Budapest                    35540.  35564.  -0.07%   +11.0
                                 72      90              5%
 Warsaw                      2359.6  2360.2  -0.03%   +21.1
                                  1       6              3%
 Bucharest                   8331.8  8323.4   +0.10   +17.6
                                  2       0       %      0%
 Ljubljana                   804.71  805.97  -0.16%   +12.1
 Zagreb                      1892.1  1879.3   +0.68  -5.15%
                                  2       0       %  
 Belgrade                    714.23  716.76  -0.35%  -0.44%
 Sofia                       713.00  714.59  -0.22%   +21.5
                             Yield   Yield   Spread  Daily
                             (bid)   change  vs      change
                                             Bund    in
 Czech                                               spread
   2-year                         0       0   +067b   +1bps
   5-year                     0.056       0   +024b   +3bps
   10-year                    0.879  -0.017   +036b   +2bps
   2-year                      1.81  -0.011   +248b   +0bps
   5-year                     2.645  -0.039   +283b   -1bps
   10-year                    3.298  -0.037   +278b   +0bps
                FORWARD      RATE    AGREEMENT             
                             3x6     6x9     9x12    3M
 Czech Rep              <PR    0.52    0.67    0.75       0
 Hungary                <BU    0.21    0.23    0.27       0
 Poland                 <WI   1.751   1.777   1.822    1.73
 Note: FRA      are for ask                                
 quotes         prices                               
 (Additional reporting by Warsaw editorial; Editing by Keith