Regional markets mostly tracked a fall in German stocks and Bund yields after the European Commission sharply cut its forecasts for economic growth and inflation in the euro zone.

If lower inflation leads to a softer European Central Bank (ECB) policy, that could in theory make Central European currencies more attractive relative to the euro.

But a flow of weak economic data from Europe also caused a shift towards a less hawkish monetary policy outlook for the European Union's eastern wing where companies are at risk of being hit by an economic slowdown in the West.

Polish shares were the biggest fallers, shedding 1.7 percent by 1506 GMT, almost as much as Frankfurt which fell 2.1 percent.

A rise in Warsaw's bluechip index stopped just short of an 11-month high on Wednesday, and on Thursday was knocked mainly by falls in oil group PKN Orlen and PKO BP.

Bucharest bucked the bearish mood, with its index up 1.6 percent as banks Banca Transilvania and BRD Groupe Societe Generale continued to recover.

The stocks have regained some ground after a slump in the past month, helped by hopes for a favourable change in a Romanian tax launched this year on bank assets.

The government and the central bank (NBR), which met on Monday, are expected to discuss the tax further on Feb. 18.

NBR Governor Mugur Isarescu said on Thursday that an improved economy should keep interbank rates low.

The NBR and its Czech, Serbian and Polish counterparts kept interest rates on hold on Wednesday and Thursday.

The crown touched its weakest levels against the euro since Dec. 28 at 25.84, before rebounding to 25.79.

The forint touched a 3-week low and the zloty 4-week lows beyond the 4.3 line versus the euro.

Czech central bank Governor Jiri Rusnok said the bank could wait with further policy tightening as developments abroad may point towards lower inflation.

He said the neutral level for the bank's main rate, currently 1.75 percent, was 2.5-3 percent, but it could be hardly reached this year.

Government bond yields in the region mostly tracked a fall in Bund yields.