UPDATE 4-Croatia jails ex-PM Sanader for 10 years over graft
* Convicted of taking bribes from Hungary's MOL, Austrian bank
* Croatia's anti-graft effort remains under EU scrutiny
* Verdict may have implications for MOL, Croatia's INA
* MOL shares fall 3.7 percent by close of trading (Adds Croatian foreign minister, MOL shares down at close)
ZAGREB, Nov 20 (Reuters) - Former Croatian prime minister Ivo Sanader was sentenced to 10 years in prison on Tuesday for taking bribes from two foreign companies, becoming the highest state official to be convicted of corruption in the future European Union member state.
Croatia is due to join the EU in July 2013 and Sanader's conviction is likely to be seen as evidence it is cracking down on corruption. Its efforts to fight crime and graft are being carefully monitored before it formally joins the bloc.
A Zagreb county court found Sanader, 59, guilty of agreeing in 2008 to accept a payment from Hungary's energy group MOL of 5 million euros in exchange for granting it full management rights over Croatia's oil concern INA.
The ruling, against which Sanader is likely to appeal, sent MOL shares in Budapest down 3.7 percent by the close of business on Tuesday, compared with 1.5 percent fall in the main index . Market participants said earlier in the day that MOL was falling due to concerns that the court decision might prompt Croatia to review MOL's shareholder agreement with INA.
Judge Ivan Turudic also said Sanader had taken a fee from Austrian Hypo Alpe Adria Bank in 1995, when he was deputy foreign minister, that prosecutors had described as "war profiteering". Croatia's war of independence from Serbian-led federal Yugoslavia was winding down at the time.
Sanader, who looked drawn and thoughtful in court, has strongly denied wrongdoing and dismissed the trial as politically motivated. He will be detained until the appeal.
"You have damaged Croatia's reputation. Because you were a top state official, this verdict is a message to those engaged in politics that crime does not pay," Turudic said.
"This verdict will certainly be welcomed in the EU, and it sets a benchmark for all EU candidate countries," said Drazen Rajkovic, author of the book "How Sanader Stole Croatia".
As prime minister between 2004 and 2009, Sanader was the most powerful man in Croatia, known for smart suits and expensive watches, and his fall from grace coincides with Croatia's campaign to root out corruption.
Sanader resigned in July 2009, unexpectedly and without explanation. Jadranka Kosor, his hand-picked successor, then launched an anti-graft drive that helped Zagreb complete European Union entry talks in June 2011.
Sanader is on trial separately - together with his former conservative HDZ party, which is now in opposition - on charges of creating slush funds for the party by skimming off profits from state companies and by manipulating public tenders.
Despite the market jitters over MOL's future in INA, Croatia's biggest utility engaged in exploration, drilling, refining and retail, analysts said there was no alarm yet.
Croatian Foreign Minister Vesna Pusic said that the government in Zagreb had no intention to review the deal between INA and MOL before Sanader's defence files an appeal.
"We will consider such a move only after the verdict is final," Pusic said in a television broadcast.
In a brief statement, MOL said it "continues to categorically reject" accusations made in the trial and vowed to work further to make INA more profitable and successful.
"The chance of a retroactive break-up of MOL and INA is less than one percent," Raiffeisen Bank equity analyst Levente Blaho told Reuters. "The verdict is at the first instance, this might very well change further down the line."
"MOL has said time and again that it did nothing wrong and that it would defend this in open court. It is not positive that the company was named in the verdict but it should have no dramatic effect on the share price now," he said.
MOL has slightly more than a 49 percent stake in INA and the Croatian government almost 45 percent. Relations over management rights have been strained for the past few years. (Reporting by Zoran Radosavljevic; additional reporting by the Budapest bureau; Editing by Mark Heinrich)