UPDATE 1-Czechs say met EU fiscal stability rule in 2006

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PRAGUE, April 2 (Reuters) - The Czech Republic revised the 2006 public finance deficit down to 2.95 percent of gross domestic product (GDP) in 2006 on Monday, meaning it met the European Union's rule for fiscal stability.

The Statistical Bureau said in a report filed to Brussels that the shortfall for 2006 was revised from a previously reported 3.5 percent of GDP upon receiving preliminary government data and partly applying "expert guesses".

It did not elaborate.

Analysts have said sustained economic growth of some 6 percent annually filled the state coffers and helped keep a lid on the deficit, incurred mainly due to a costly welfare state.

The 2006 fiscal gap narrowed from 3.53 percent of GDP in 2005, falling below the EU's 3 percent ceiling, which is also one of the fiscal criteria for adoption of the euro currency.

The 2005 gap was revised downwards from 3.6 percent reported previously, the bureau said.

The revised numbers were part of a report, the so-called notification, on public debt and deficit levels which each European Union member state submits to Brussels twice a year.

The 2006 result will leave the country out of the EU's excessive deficit procedures which prescribe a gradual deficit reduction to a member state with a bigger than 3 percent gap and could eventually lead to a halt of funding from EU's funds.

The Czech Republic, however, has forecast the public shortfall will widen to some 4 percent of GDP this year, due mainly to a highly controversial boost to social spending approved by parliament before last year's elections.

The pre-election legislation boosted social transfers by an equivalent of 1.1 percent of GDP this year, denting public finances and forcing the country to give up on aspirations to adopt the euro in 2010.

It has yet to set a new target date for adoption.