HANOI, Oct 26 (Reuters) - Vietnam is preparing to loosen its tight leash on the dong currency, including possibly widening its trading band with the U.S. dollar again, in order to conserve its shrinking currency reserves, a source with direct knowledge of the matter said on Wednesday. The State Bank of Vietnam (SBV) has intervened to defend the currency, although it rarely discloses FX reserves data or the amount of dollars spent. Widening the band, which would allow the market to drive the currency lower without triggering so much FX reserves selling, was one possibility, the source said. Other measures to cushion the dong, without exhausting FX reserves, were also being discussed, he said, without providing further details. The source said the SBV was trying to conserve its dollars as the country's FX reserves had sunk to the International Monetary Fund's recommended level, which is at least three months of imports.

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