The pick-up in Hungarian growth, nearly twice as fast as forecast, reflected aggressive stimulus policies from the government and central bank, while Polish authorities have decided to increase this year's budget deficit to nurture the recovery.

Poland's economy, which accounts for 40 percent of the region's annual output of roughly 940 billion euros ($1.26 trillion), expanded by 0.6 percent compared to the second quarter, while Hungary grew 0.8 percent.

Nomura's Peter Attard Montalto called the Hungarian data a "massive upside surprise".

But the Czech economy shrank by 0.5 percent, defying forecasts for a 0.5 percent rise.

In annual terms, growth in Poland picked up to 1.9 percent, more than twice the expansion from the second quarter and above analysts' forecasts of 1.6 percent.

Breakdown of growth rates is not available yet, but analysts believe a gradual revival in the euro zone, the region's main trade and banking partner, helped exports.

There were also signs that domestic demand was picking up in Poland and Hungary, making the upturn more sustainable.

"Today's data confirm that Poland is on a revival path, but it is less steep than after 2008," BRE Bank said in a note. "The recovery is still led to a large extent by external demand."

But central bank interest rate cuts and a stronger labour market are helping local demand, BRE Bank added.

Poland is the only European Union economy to avoid recession since the start of the 2008 global financial crisis. But growth nearly evaporated at the start of the year, hit by government efforts to tighten its budget and weakness in export markets.

Since then the government has freed up scope for spending with a controversial pension reform.

In much of the region, inflation has fallen deep below central bank targets and growth has been below potential as the private sector curbed investment and banks wound back lending.

Zbignew Jagiello, the chief executive of Poland's largest bank PKO BP, flagged a turnaround. "We are in a phase of economic growth, which means that consumers will be more willing to take out loans," he told a conference on Thursday.

HUNGARY PICKS UP, CZECHS SLUMP

Hungary's government, which faces elections next year, has also encouraged consumer spending by slashing households' energy utility bills by roughly 20 percent.

Hungary's roughly 100 billion euro economy grew an annual 1.7 percent based on preliminary unadjusted data, nearly double the 0.9 percent expansion analysts had forecast.

The statistics office said agriculture, industry and construction led the upturn. The economy ministry said growth could pick up to 2.5 percent in the last quarter of this year.

The central bank, which has cut rates to an all-time low of 3.40 percent, has also put in place a $12.5 billion plan to stimulate lending to small businesses by giving free funding to commercial banks for such loans.

"There is no breakdown as it's a flash estimate but we suspect support comes on the expenditure side from ... the vibrant export sector, inventory build and the effects of (the central bank) pumping in free money," Nomura's Montalto said.

The Czech economy shrank by 0.5 percent in the third quarter versus the previous three months, dashing expectations it could sustain growth after emerging from a six-quarter recession this year. GDP dropped 1.6 percent year-on-year.

The central bank launched the first crown sales on the open market for over a decade last week to revive inflation and support economic growth.

Romania's economy grew 4.1 percent on the year in the third quarter, above market expectations, and by 1.6 percent on a quarterly basis. Analysts said growth was most likely heavily boosted by a strong harvest.

(Writing by Marcin Goettig; Editing by Ruth Pitchford)

By Marcin Goettig