January 11, 2018 / 3:10 PM / a year ago

CEE MARKETS-Fx, bonds retreat on ECB, Serbia keeps rates on hold

    * Bonds give up ground as ECB minutes suggest rhetoric
    * Bond yields drop initially as China dismisses report on
    * Serbian central bank keeps rates on hold
    * Romanian stocks outperform, a bank stock is a key driver

 (Recasts with impact of ECB minutes, Serbian central bank rate
decision, Romanian auction, Czech central bank)
    By Sandor Peto
    BUDAPEST, Jan 11 (Reuters) - Central European currencies and
government bonds retreated on Thursday as minutes from the ECB's
December meeting triggered some expectation that it may shift to
more hawkish rhetoric.
    The European Central Bank's monetary stimulus in the euro
zone has also generated additional demand in European Union
members which still use their own currencies.
    The minutes said the ECB should revisit its communication
stance in early 2018 and gradually adjust its language to
reflect improved growth prospects.
    "The ECB minutes have stopped the earlier yield decline,"
one Budapest-based fixed income trader said. 
    "I do not think that the ECB could cause change in the
thinking of the (dovish) Hungarian central bank very
significantly, but it still watches the ECB," the trader added.
    Central European currencies and bonds firmed earlier on
Thursday due to increased appetite after Chinese regulators
dismissed a media report the government is halting or reducing
its purchases of U.S. debt. They reversed the rise after the
publication of the ECB minutes.
    The forint, the zloty and the leu
 flattened out against the euro, and Croatia's kuna
 tested this year's weakest levels, shedding 0.1
percent to trade at 7.4585.
    Only the crown retained some of its gains, after
the Czech central bank announced a new strategy to manage its
huge foreign currency reserves.
    Nordea analyst Natalia Kornelia Setlak projected that the
region's main currencies will strengthen this year, including
the forint despite the Hungarian central bank's loose policy.
    "Going forward, we expect a continued positive sentiment for
the EM (emerging market) currencies this year," she said.
    The dinar was steady at 118.8 against the euro
after the Serbian central bank kept its benchmark rate on hold
as expected, saying inflation was under control.
    Elsewhere in the region, inflation concerns have led to rate
hikes in Prague and Bucharest.
    The Romanian central bank delivered its first hike in a
decade on Monday.
    A rise in the shares of Banca Transilvania, one
of Romania's top banks, has been a key driver of Bucharest's
equities index recently, which has outperformed the
region with 5.2 percent rise this year, gaining 1.5 percent on
    Romania's government sold 500 million lei  ($129.76
million)worth of 5-year bonds at an average yield of 3.8 percent
at an auction as expected. 
    Hungarian government bond yields rose by about 3 basis
points from the day's lows after the ECB minutes, but some bonds
were still below late Wednesday levels.
    The 10-year paper traded at a yield of 1.97 percent.
Poland's corresponding yield initially dropped 5 basis points,
but rose 6 basis points from there by late trade to 3.3345
            CEE        SNAPSHOT   AT                         
            MARKETS              1438 CET            
                       Latest    Previous  Daily     Change
                       bid       close     change    in 2018
 Czech                  25.5400   25.5550    +0.06%    +0.01%
 Hungary               309.3500  309.4200    +0.02%    +0.51%
 Polish                  4.1746    4.1760    +0.03%    +0.04%
 Romanian                4.6420    4.6410    -0.02%    +0.81%
 Croatian                7.4585    7.4485    -0.13%    -0.38%
 Serbian               118.8000  118.8000    +0.00%    -0.25%
 Note:      calculated from                1800 CET          
                       Latest    Previous  Daily     Change
                                 close     change    in 2018
 Prague                 1107.14  1101.730    +0.49%    +2.69%
 Budapest              39507.27  39651.23    -0.36%    +0.33%
 Warsaw                 2523.84   2511.27    +0.50%    +2.54%
 Bucharest              8157.12   8034.85    +1.52%    +5.20%
 Ljubljana               819.74    818.42    +0.16%    +1.66%
 Zagreb                 1852.71   1857.69    -0.27%    +0.53%
 Belgrade   <.BELEX15    767.80    767.53    +0.04%    +1.05%
 Sofia                   705.54    697.93    +1.09%    +4.15%
                       Yield     Yield     Spread    Daily
                       (bid)     change    vs Bund   change
 Czech                                               spread
   2-year   <CZ2YT=RR    0.5980    0.0680   +118bps     +4bps
   5-year   <CZ5YT=RR    0.9470    0.0140   +110bps     -3bps
   10-year  <CZ10YT=R    1.6750   -0.0340   +118bps     -5bps
   2-year   <PL2YT=RR    1.6230   -0.0030   +221bps     -4bps
   5-year   <PL5YT=RR    2.6060    0.0190   +276bps     -2bps
   10-year  <PL10YT=R    3.3380    0.0050   +284bps     -1bps
            FORWARD    RATE      AGREEMEN                    
                       3x6       6x9       9x12      3M
 Czech Rep          <      1.03      1.20      1.33      0.76
 Hungary            <      0.03      0.15      0.21      0.02
 Poland             <      1.76      1.78      1.88      1.72
 Note: FRA  are for ask prices                               
 ($1 = 3.8532 lei)

 (Additional reporting by Luiza Ilie in Bucharest; Editing by
Ralph Boulton and Peter Graff)
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