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BUDAPEST/PRAGUE: Central European currencies and stocks rebounded on Friday, with Budapest's stock index hitting a record high.

A batch of domestic news also improved the outlook of financial sector stocks in the region.

A Czech central banker reiterated the possibility of gradual rate hikes and a deal in Hungary about a certified mortgage lending scheme put less stress on banks' spreads than expected.

The forint and the leu firmed 0.2 percent against the euro by 0853 GMT, the zloty gained 0.3 percent and the Czech crown 0.1 percent.

Czech central bank (CNB) board member Marek Mora said in an interview in the Hospodarske Noviny daily that the bank should raise interest rates slowly and gradually, but a lack of exchange rate rise may lead to a faster path.

The CNB is the first central bank in the region to flag that a reversal of years of interest rate cuts may be near.

Early last month, the bank opened the way for a firming of the crown, which can push inflation lower, removing a cap which had kept the currency weaker than 27 since 2013.

The currency has firmed less than investors, who have bought tens of billions of euros worth of crowns, had expected.

"If the koruna (crown) does not significantly strengthen to less than EUR/CZK 26 we may see the CNB decide - for the first time in almost 10 years - to hike its 2W (two-week) repo rate this year," Komercni analysts said in a note.

It traded at 26.558 to the euro.

The region's main currencies and stock indices are near multi-week or even multi-year highs despite a fall this week due to the worries over US President Donald Trump's future.

Investors also watch Brazil's corruption crisis and economic woes, a fixed income trader said.

"If the trouble in Latin America is big, investors may sell assets here (in Central Europe) as well, because these markets remain liquid," the trader said. "If the trouble is not so big, they may even channel funds here."

The latest data from the region confirmed that its economies growing at robust rates, partly fuelled by surging wages, without signs of a surge in inflation or budget deficits, at least for now.

Hungary's central bank launched a set of measures to boost competition in recovering mortgage lending. The maximum 350 basis point lending spread in the voluntary scheme was below earlier hints of a more painful 250 basis points.

A jump in the shares of OTP Bank and mortgage lender FHB boosted Budapest's stock index to a record high.



Copyright Reuters, 2017




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