By Jesús Aguado

MADRID (Reuters) -The board of Spanish lender Sabadell on Tuesday advised its shareholders to reject BBVA's improved hostile takeover bid, adding that it fundamentally undervalued the bank.

However, Mexican investor David Martinez, the largest shareholder on Sabadell's board with a 3.86% holding through Fintech Europe, said he would accept BBVA's recent sweetener, in what is the first indication of an acceptance during the bid period, which will last until October 10.

The bid is currently worth around 16.97 billion euros ($19.91 billion).

"I have decided to participate in the offer presented by BBVA because I believe that the future consolidation of both institutions in Spain will result in an even more competitive entity," Martinez said as part of the board's opinion.

In the report, Martinez said that enormous attention had been paid to the price of the offer, but in his view, "this factor is secondary to the strategic benefits of the integration of the entities in the long term".

The board's recommendation is a last-ditch effort by Sabadell's management to stop its bigger rival from convincing enough shareholders that their future is better off in what would become the second-largest bank in the euro zone by market value.

($1 = 0.8524 euros)