UPDATE 1-Czech c.bank surprises with 1/4 point rate rise

(Adds market reaction, Polish decision, background)

PRAGUE, Sept 27 (Reuters) - The Czech central bank raised its key policy rate by 25 basis points on Wednesday, defying analysts who had largely expected the policymakers to delay a hike until next month.

The decision, however, was anticipated by some in the market who said a tightening could come this week after surprise hikes in Hungary and Slovakia, and amid a worsening Czech fiscal outlook, growing demand and a weaker crown currency.

The decision puts the 2-week repo rate at 2.50 percent, 50 basis points below the key euro zone rate.

The bank gave no comment on the decision but called a news conference for 3.30 p.m. (1330 GMT).

The crown currency firmed to 28.395 to the euro <EURCZK=> from 28.425 just ahead of the decision. The currency has dropped from a record high of 27.955 to the euro in August.

Last month, the central bank's board voted unanimously to hold rates steady and said risks to its July quarterly inflation forecast, which saw gradual rate hikes, were balanced.

It also said crown strength was the sole major downside risk to inflation.

Several central bankers have criticised an expected widening of the fiscal deficit next year, coming at a time of record economic growth.

Meanwhile in Poland, the central bank left rates steady as expected on Wednesday. ((Reporting by Jan Lopatka, editing by Mike Peacock; prague.newsroom@reuters.com; Reuters Messaging: jan.lopatka.reuters.com@reuters.net; +420-224 190 474))

Keywords: ECONOMY CZECH RATES