UPDATE 1-PKN to propose no 2007 dividend-acting CEO

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KRAKOW, Poland, April 21 (Reuters) - Poland's largest fuel group, PKN Orlen PKNA.WA will recommend paying no dividend for 2007, its interim chief executive said on Monday.

PKN, 33 percent state-owned, was spared a large dividend payout last year that the previous Polish government squeezed out of several other state-controlled companies to plug a budget hole.

PKN's finances are weighed down by loans it took on to buy Lithuanian refiner Mazeikiu Nafta in late 2006.

"Management will recommend not to pay a dividend from profit from 2007," acting CEO Wojciech Heydel told reporters.

"The current situation in the company, linked to (our need) to pay off loans taken out to buy Mazeikiu, means we will recommend no payout."

PKN Orlen has said in the past its policy was to pay half of its free cash flow as dividend, barring major acquisitions, but a lack of free cash flow resulted in no dividend from 2006 profit.

The company reports first-quarter earnings on May 15 and is expected to name a new chief executive in the next two weeks. Polish media have put Heydel among the front-runners.

By 1023 GMT, PKN shares were down 1 percent to 42.01 zlotys ($19.46), underperforming Warsaw's large-cap WIG20 index .WIG20, which was down 0.6 percent. (Reporting by Wojciech Zurawski, writing by Marynia Kruk; Editing by Paul Bolding)