CEE MARKETS-Forint extends gains on expectations of interest rate hike

By Anita Komuves BUDAPEST, May 18 (Reuters) - The Hungarian forint rose on Tuesday, strengthened by GDP data from Hungary and Romania that surprised to the upside, and extending gains from the previous session when the central bank flagged a possible rate hike in June. "The forint is firming, but it turned around from 350 this morning, because that is a very strong technical and psychological level," a Budapest-based FX trader said. "But the market expects further strengthening in the short- and mid-term and appreciates the ... clear communication from the central bank." Deputy Governor Barnabas Virag said on Monday that from June the central bank will adjust short-term rates proactively to tackle rising inflation risks. The bank will hold its next rate meeting next Tuesday. The forint was 0.31% stronger on the day, trading at 350.55 per euro, after briefly firming to 349.80 early in the morning. Hungarian government bond yields were stable on Tuesday after rising on Monday on the central bank's announcement, a fixed income trader said. On Monday short-term yields jumped about 20-30 basis points while long-term yields went up about 10 basis points. Hungary's economy shrank by an annual 2.3% in the first quarter, better than forecasts, data showed on Tuesday. In Romania a flash estimate also showed a smaller-than-expected contraction in GDP as the economy shrank 0.2% year-on-year. Poland last week reported a 1.2% contraction for the first quarter while the Czech economy fell 2.1%. The Romanian leu and the Czech crown edged down while the Polish zloty gained 0.18% on the day and was trading at 4.5275 versus the common currency. The currency could further gain "supported by the latest increase in expectations for interest rate hikes among Central and Eastern European countries," Bank Millenium wrote. A jump in inflation in CEE countries in April fuelled rate hike expectations in the region, but previously only the Czech central bank had been tipped by markets to hike interest rates this year. The 10-year Polish government bond yield retreated on Tuesday after it hit 2% on Monday for the first time since March 2020. Stocks in the region gained, with Warsaw leading markets by adding 1%. Prague was up 0.67% while Budapest firmed 0.35%. CEE SNAPSHO AT MARKETS T 1028 CET CURRENC IES Latest Previous Daily Change bid close change in 2021 EURCZK= Czech EURHUF= Hungary 0 EURPLN= Polish EURRON= Romania EURHRK= Croatia EURRSD= Serbian 0 Note: calculated from 1800 daily CET change Latest Previous Daily Change close change in 2021 .PX Prague 1138.15 1130.520 +0.67% +10.81 0 % .BUX Budapes 46023.4 45862.01 +0.35% +9.30% t 4 .WIG20 Warsaw 2150.43 2128.49 +1.03% +8.39% .BETI Buchare 11652.8 11600.63 +0.45% +18.84 st 8 % .SBITOP Ljublja <.SBITOP 1085.07 1083.94 +0.10% +20.45 na > % .CRBEX Zagreb 1946.71 1942.98 +0.19% +11.93 % .BELEX1 Belgrad <.BELEX1 757.62 759.60 -0.26% +1.20% 5 e 5> .SOFIX Sofia 520.22 520.95 -0.14% +16.24 % Yield Yield Spread Daily (bid) change vs Bund change in Czech spread Republi c CZ2YT=R s CZ5YT=R s CZ10YT= s Poland PL2YT=R s PL5YT=R s PL10YT= s FORWARD 3x6 6x9 9x12 3M interba nk Czech 0.68 1.02 1.35 0.36 Rep Hungary 1.20 1.42 1.55 0.85 Poland 0.43 0.58 0.77 0.21 Note: are for ask FRA prices quotes ********************************************* ***************** (Additional reporting by Alan Charlish in Warsaw; editing by Barbara Lewis)