* Leu weakens, Romanian government to discuss 2017 budget * Zloty trades near 3-and-1/2-month highs vs euro * Polish 10-yr bond yield retreats from highest since May 2014 By Sandor Peto and Marcin Goettig BUDAPEST/WARSAW, Jan 27 (Reuters) - The leu and Romanian government bonds eased on Friday ahead of a meeting of the country's government to approve a 2017 budget plan with ambitious wage and pension hikes and several tax cuts.
Investors are worried that the new government does not have adjustment measures lined up which could prevent a deficit rise and sanctions from the European Union.
The leu eased 0.1 percent against the euro by 0855 GMT, on the weak side of the 4.5 line around which it has been hovering this year.
Romania's 10-year government bond yield was bid at 3.65 percent, up 5 basis points, at this year's highest levels.
"Our relative value trade recommendation to prefer HGBs (Hungarian bonds) over POLGBs (Poland) and ROMGBs (Romania) is playing out well," Raiffeisen analyst Stephan Imre said in a note.
"Should the MinFin (finance ministry), however, present a convincing budget plan today, this definitely could help unlock some value at back-end ROMGBs and set in motion a mini-recovery rally on the local debt market," he added.
Hungary's 10-year yield was steady at 3.48 percent, but the forint eased 0.1 percent against the euro, trading near Thursday's 6-week lows.
It eased against the euro and the zloty after dovish guidance from the Hungarian central bank on Tuesday despite a rebound in inflation across the region.
The zloty gained 0.2 percent to 4.34 versus the euro, trading just shy of Thursday's 3-and-1/2-month highs.
"We see no reason for zloty to suddenly weaken today," mBank analysts said in a note, citing improving economic fundamentals.
Analysts expect the economy, the biggest in Central Europe, to pick up this year.
Warsaw's blue-chip stock index eased 0.2 percent to 2,075 points, giving up some of this week's strong gains which brought it to levels last seen in October 2015 when the conservative Law and Justice Party won elections.
Its less business-friendly policies triggered a decline in Polish asset prices last year.
Polish equities outperformed the region this week, supporting the zloty, tracking a global rise in stock markets as new president Donald Trump pledged economic stimulus in the U.S.
"The key may be if WIG20 breaks the 2,100 point-level, which may pave the way for further growth," brokerage BGZ BNP Paribas said in a note.
Trump's vows sent government bond yields higher worldwide. Poland's 10-year yield rose to its highest levels since may 2014 by Thursday, before retreating 2 basis points on Friday to 3.8255 percent.
CEE SNAPS AT 0955 MARKETS HOT CET CURRENCIES Lates Previ Daily Chang t ous e bid close chang in e 2017 Czech crown 27.02 27.02 +0.0 -0.05 00 10 0% % Hungary 311.5 311.2 -0.09 -0.86 forint 000 300 % % Polish 4.340 4.347 +0.1 1.47% zloty 0 2 7% Romanian 4.502 4.497 -0.12 0.72% leu 5 1 % Croatian 7.482 7.488 +0.0 0.98% kuna 0 0 8% Serbian 123.8 124.0 +0.1 -0.41 dinar 600 000 1% % Note: daily calculate previ close 1800 change d from ous at CET STOCK S Lates Previ Daily Chang t ous e close chang in e 2017 Prague 937.8 938.0 -0.02 +1.7 6 8 % 6% Budapest 32851 32918 -0.20 +2.6 .53 .47 % 5% Warsaw 2075. 2080. -0.23 +6.5 69 40 % 6% Bucharest 7462. 7401. +0.8 +5.3 09 72 2% 2% Ljubljana 736.7 740.1 -0.45 +2.6 6 1 % 7% Zagreb 2104. 2109. -0.24 +5.4 02 13 % 7% Belgrade
