UPDATE 1-Vietnam dong falls to 3-mth lows, tumbles offshore

(Recasts, adds offshore forwards, comments)

HANOI, May 28 (Reuters) - Vietnam's dong fell to its lowest in more than three months on Wednesday, while the offshore forwards market priced in a 30 percent depreciation in the currency on worries over inflation and a widening trade deficit.

The dong's spot rate VND= stood at 16,216 to 16,221 per dollar by 0413 GMT, after the central bank, set the official exchange rate at 16,069 dong per dollar.

That was the lowest since Feb. 20 when it was 16,070 dong per dollar. The State Bank of Vietnam allows banks to trade the currencies only within a band of +/- 1 percent of the official rate daily on the foreign exchange market.

The government has said that during 2008 it would allow a 2 percent annual appreciation or depreciation of the dong.

On the black market, the dong was up about 4 percent at 17,100 to 17,200 to the dollar on Wenesday after falling to 17,800 dong on Tuesday as residents in the capital Hanoi rushed to gold shops to buy the hard currency.

"The main reason that led to a strong rise of the U.S. dollar on the free market is due to the dollar buying demand among part of the population," Nguyen Quang Huy, director of the central bank's Foreign Exchange Management Department said.

"This sentiment emerged from some unfavourable information such as the recently published inflation rate in May that continues staying high and there is certainly also a speculative factor," Huy said in a statement on the central bank's website (www.sbv.gov.vn).

By 0840 GMT, rates in the offshore forward market PNDG stood at 21,600/22,600 dong per dollar for one-year term, suggesting the dong would fall 33 percent from its spot rate on Wednesday.