CEE MARKETS-Stocks head for multi-month slumps as fresh US tariffs kick off

WARSAW, March 4 (Reuters) - Central European stock markets were on track for their biggest drop in months on Tuesday, caught in a global sell-off after U.S. tariffs on its top three trading partners - Canada, Mexico and China - came into effect.

U.S. President Donald Trump's fresh 25% tariffs on imports from Mexico and Canada took effect on Tuesday, along with a doubling of duties on Chinese goods to 20%.

Broader European shares also dropped on concerns that similar levies could be imposed on the European Union.

"It is possible that we will see further decisions by Trump's administration, this time aimed at the European Union," Bank Millennium analysts wrote in a note.

Geopolitics would remain the primary factor for financial markets, they said, also pointing to the Trump administration's suspension of military aid to Ukraine.

Central Europe's economies are highly dependent on exports to Western EU countries, especially Germany.

As of 1353 GMT, Warsaw's .WIG20 blue-chip index, led losses in the region, dropping 3.4%, its biggest loss in nearly 2-1/2 years. It was trading at a three-week low, coming off a recent 14-year highs.

"My impression is that there is chaos because of such very important topics that were being played out in the market, so from our point of view, we can say the issue of Ukraine and the withdrawal of support from the United States," DM BOS analyst Konrad Ryczko said.

"It was said that this strong Warsaw is partly due to expectations for the start of talks and the creation of a peace plan on the Russia-Ukraine level, and now it has taken a rather disturbing form.... I think it is causing a certain anxiety for capital in the region."

The Prague .PX and Budapest .BUX indexes both retreated from recent record highs and slipped 2.1% and 3.0%, respectively.

On the currency front, Hungary's forint EURHUF= edged 0.1% against the euro at 399.55, after hitting 398.05, its strongest level since October 2024, in early trading.

"The forint is firming as it got on the train of the weakening dollar and no more rate cuts, there is nothing else really affecting it. There is a very little activity on the market actually," a Budapest-based trader said.

Hungary's central bank left its base rate steady last week, citing the risk that inflation could be higher this year than previously forecast.

"On the issue of global news, there is a wait-and-see mode, a back-and-forth on tariffs has started and markets need to see where all that will lead in the long term," the trader added.

The zloty traded flat at 4.1655 per euro, after increased volatility since Friday.

"We expect that, despite the continued nervousness, the valuation of the Polish currency against the euro will oscillate around 4.17, waiting for new impulses ... In our opinion, the zloty will stay jittery and the direction of changes will depend on the incoming information on broadly understood geopolitics," Bank Millennium analysts wrote.

The Czech crown EURCZK= also moved sideways, trading at 25.05 per euro, on the weaker side of the key 25 level.

"The security situation in Europe is rather deteriorating in the unclear geopolitical terrain and the reality is the start of the Trump 2.0 trade wars - none of this plays much in the crown's favour," Czech bank CSOB said in a note.

Trump paused military aid to Ukraine overnight following his clash with Ukrainian President Volodymyr Zelenskiy last week, a White House official said, deepening the fissure that has opened between the one-time allies.