* Swiss plan retaliation after EU ruling on stock exchanges
* Swiss exchanges get one-year access to single market
* EU wants progress on new treaty with Bern
* Row threatens setback to thawing bilateral ties (Adds SIX Swiss Exchange comment, background)
By Michael Shields and Robin Emmott
ZURICH/BRUSSELS, Dec 21 (Reuters) - Swiss relations with the European Union soured on Thursday as Bern promised retaliation over what it called unacceptable limitations on Swiss stock exchanges’ access to the EU single market.
The row threatened to set back ties between neutral Switzerland and its main trading partner that had been thawing after the Swiss parliament last year skirted voters’ demand for immigration quotas for EU citizens.
Swiss President Doris Leuthard accused the EU of trying to undermine Switzerland as a financial centre by granting its stock exchanges only temporary access to the bloc.
Bern wants the same regulatory status for Swiss bourses as those in other countries have, enabling EU investors to trade in Switzerland, a crucial source of exchange volume.
The European Commission agreed to grant Swiss exchanges only one year of access, part of a broader deal aimed at defining Bern’s ties with the bloc.
Only Britain abstained in a vote by EU members on Wednesday. It had lobbied for full Swiss access, officials said, reflecting London’s bid for preferable access for its own financial services after the country leaves the European Union.
“Switzerland fulfils the conditions for recognition of stock market equivalence every bit as much as the other third countries that have been granted indefinite recognition,” Leuthard told reporters.
“Switzerland therefore considers this limited recognition to be a clear case of discrimination. Linking this technical dossier with institutional issues is extraneous and unacceptable.”
She said the finance ministry would propose steps by the end of January that could include halting collection of stamp duty on transactions to make Swiss exchanges more attractive.
The government would also review its plan, announced when European Commission President Jean-Claude Juncker met Leuthard last month, to contribute an extra 1.3 billion Swiss francs ($1.32 billion) in development funds for newer EU members.
The EU’s recognising the SIX Swiss Exchange and BX Swiss as equivalent to exchanges based in the EU will avoid disruption after new MiFID II market rules come into force in January.
But by allowing Swiss exchanges only one year of access to the single market, Brussels is increasing the pressure on Switzerland to agree on a new treaty that would replace a patchwork of bilateral accords that now govern ties.
“It is a matter where we have seen too little progress,” one EU official said. “In April, the objective was to complete negotiations before the end of the year, but that didn’t happen. The objective is now to make progress by May 2018.”
The project has hit obstacles as Swiss conservative parties baulk at giving the European Court of Justice a say in settling disputes over EU laws that Switzerland would have to adopt as the price of enhanced access to the single market.
Leuthard noted that the Swiss government had made it an objective to continue treaty negotiations in 2018.
SIX Swiss Exchange said it regretted the temporary nature of the EU decision.
$1 = 0.9881 Swiss francs Reporting by Michael Shields