* Equities rebound in line with Western stock markets * Zloty weakest in almost 3 weeks, but rebounds * Polish budget plans add to risks on zloty-analysts By Sandor Peto and Jakub Iglewski BUDAPEST/WARSAW, Aug 22 (Reuters) - The Polish zloty eased in early trade on Monday on concerns over a possible budget deficit overshoot, before regaining some ground helped by a rebound of Europe's main equities indices.
In early trade the zloty fell to its weakest level in almost 3-weeks against the euro, after a source said Poland would set its budget deficit target at 2.9 percent of economic output for 2017, just a touch below the European Union's 3 percent ceiling.
A deficit overshoot could open a new front with the European Commission which is also challenging Poland over changes to its supreme court.
Such local factors can easily lift volatility in the EU's emerging markets at a time when global risk appetite is uncertain amid speculation about possible Federal Reserve interest rate hikes.
The news about Poland's budget "Won't help the currency in the following days," Bank Pekao analysts said in a note, adding that the currency could test weaker levels than 4.32 against the euro soon.
The zloty traded at 4.3076 at 0839 GMT, firmer by 0.1 percent from Friday's close, and off early lows at 4.318.
A rise of financial sector stocks helped Warsaw's bluechip stock index rise by 0.3 percent and Prague's main index firm 0.6 percent.
The rise ends a week of losses posted by Polish bank shares .
Polish bank stocks have retreated from multi-month highs hit earlier this month on a plan to tackle the problem of Swiss franc loans in the banking system, which looked less painful to lenders than earlier thought.
Some details of the scheme are still unclear and risks over Poland's budget and dispute with Brussels would justify a zloty retreat to 4.35, Raiffeisen analyst Wofgang Ernst said.
"Moreover, speculation on rate cuts in Poland could intensify on the back of recent disappointing economic data, contributing to additional PLN weakening," he said in a note.
The Polish government source also said that the finance ministry had cut its economic growth forecast for 2016 to 3.4 percent from 3.8 percent.
That would be still much faster than euro zone growth.
The leu firmed 0.1 percent to 4.4615 versus the euro, after Moody's did not change Romania's sovereign ratings on Friday despite some concerns that it may lower the outlook on the rating from 'positive'.
Romania has boosted wages and cut value-added taxes as governments in the region loosen their budgets to try to lift inflation from anaemic levels and fight a flight of skilled labour into richer Western countries.