Mix granulated sugar, cornstarch and nutmeg in 3-quart saucepan.
Gradually stir in milk.
Heat to boiling over medium heat, stirring constantly.
Boil and stir 1 minute; remove from heat.
Stir in butter and lemon peel.
Spread evenly in ungreased square baking dish, 8x8x2 inches.
Refrigerate uncovered at least 3 hours until firm.
Cut custard into 2-inch squares, using wet knife.
Dip custard squares into eggs, then coat with bread crumbs.
Heat oil (1 to 1/2 inches) to 360°F; fry 2 or 3 squares at a time in oil 1 to 2 minutes or until light brown; drain on paper towels.
Sprinkle with powdered sugar.
