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CEE MARKETS-Stocks ease on sour European mood over Italian budget

* Budapest bucks CEE stocks fall as OTP Bank jumps over key line * Bonds, forex tread water, euro zone CPI rise not a worry By Sandor Peto BUDAPEST, Sept 28 (Reuters) - Central European stocks mostly eased on Friday as concerns over Italy's debt pile weighed on sentiment in European markets, knocking down the euro.

The bluechip index of Warsaw, which is by far the biggest bourse in the region, fell half a percent, retreating from three-week highs reached on Thursday.

But Budapest's index was the highest since Sept. 11, jumping 1 percent as the shares of heavy-weight OTP Bank dashed through a psychological line at 10,000 forints, gaining almost 3 percent.

Currencies and government bonds in the European Union's eastern wing were treading water as sentiment in emerging markets was modestly positive.

The Italian government's decision on a higher-than-expected budget goal boosted Italian bonds yields and soured sentiment in European markets.

But the Bund market, which is often watched in Central Europe as a benchmark, was calm.

A drop in underlying inflation in the euro zone challenged expectations for a rise late this year which would lay the ground for tighter policy from the European Central Bank, which is also closely watched in Central Europe.

In the region, Slovenia was the first to report September inflation figures. It said annual inflation rose to 2.2 percent from 2 percent in August.

The figures are unlikely to trigger inflation concerns elsewhere in the region, analysts said.

Fuel prices are pushing headline inflation higher, and coupled with a tobacco excise tax hike in Hungary, the index may tick up to 3.5 percent in September from 3.4 percent in August, Raiffeisen analyst Zoltan Torok told Reuters.

Hungary's central bank is keeping its main interest rate at the region's lowest level, 0.9 percent, and has not given signals for a rise, even though it made changes in its toolkit last week which it said prepared it for monetary tightening if needed.

Torok said he did not expect the upcoming inflation figure to put a pressure on the forint, which eased by 0.1 percent on Friday to 324.15.

"If inflation moves close to 4 percent (the top of the bank's 2-4 percent target range), that is already a signal which the market would not ignore," he added.

Hungarian forward rate agreements price in a rise in the 3-month interbank BUBOR rate to the central bank's main rate, while Hungarian government bonds were flat.

"But it is hard to see how that will happen, given the actual policy, and seeing that the BUBOR rate again dropped today," one Budapest-based fixed income trader said.

"The bank seems to a hold a grip on short-term interest rates," the trader added.

The rate dropped one basis points to 0.17 percent, only one tick above the past three months' lowest level.

Czech domestic markets were closed for holiday.

CEE SNAPSHOT AT MARKETS 1150 CET CURRENCI ES Latest Previous Daily Change bid close change in 2018 Czech Hungary Polish Romanian Croatian Serbian Note: calculated from 1800 CET daily change Latest Previous Daily Change close change in 2018 Budapest 36846.54 36471.35 +1.03% -6.43% Warsaw 2302.86 2315.07 -0.53% -6.43% Bucharest 8433.79 8446.41 -0.15% +8.77% Ljubljana <.SBITOP 828.18 834.95 -0.81% +2.70% > Zagreb 1780.01 1787.43 -0.42% -3.41% Belgrade <.BELEX1 724.13 725.74 -0.22% -4.69% 5> Sofia 624.70 623.10 +0.26% -7.79% BONDS Yield Yield Spread Daily (bid) change vs Bund change in Poland 2-year 5-year 10-year FORWARD RATE AGREEMEN T 3x6 6x9 9x12 3M interban k Hungary 0.39 0.62 0.89 0.17 Poland 1.77 1.79 1.84 1.72 Note: FRA are for ask prices quotes ************************************************* ************* (Reporting by Sandor Peto Editing by Matthew Mpoke Bigg)