UPDATE 2-Michelin cuts margin target, sales beat consensus

* Michelin cuts 2008 margin target to 7.0-7.5 pct

* Nine month sales down 1.1 pct at current exchange rates

* Sales up 4.5 pct on constant rates to 12.5 billion euros (Adds details from analyst conference call, background, share price)

By Helen Massy-Beresford and Matthias Blamont

PARIS, Oct 29 (Reuters) - French tyre manufacturer Michelin (MICP.PA) cut its full year operating margin target on Wednesday, blaming deteriorating North American and European markets for its second revision in three months.

The world's second largest tyre group by market value after Japan's Bridgestone Corp (5108.T) has been hit by falling demand for cars in the mature markets of North America and Europe and recent drops in raw material prices have not yet filtered through to the group's balance sheet.

The group said during a conference call that it expects the replacement tyre market to remain weak in the coming weeks.

Michelin expected an operating margin before nonrecurring items of between 7.0 percent and 7.5 percent for the fiscal year 2008, if current trends continue.

It posted nine month sales of 12.5 billion euros -- a 4.5 percent increase at constant currencies, or a 1.1 percent decrease at current exchange rates. Third quarter sales reached 4.212 billion euros, beating an average forecast of 4.131 billion euros based on 10 analysts' estimates.

Since earlier this month the group noted a sharper deterioration of demand in European and North American markets.

The manufacturer cut its full year operating margin target from a goal of approaching the 8.6 percent it made in the first half. It had already cut its target in July and was previously banking on a stable margin compared with 9.8 percent for 2007.

Michelin said oil and natural rubber prices fell sharply in the third quarter, but that these would not impact its 2008 accounts because of the time lag between buying raw materials and selling the tyres made from them.

PROJECTS UNDER REVIEW

Michelin managing partner and finance chief Jean-Dominique Senard said on a conference call it was too early to estimate the cost of a plan announced on Tuesday to modernise and rationalise activities in Italy. He said the group would probably be ready in a month or slightly more to estimate the impact on 2008 accounts.

Senard confirmed the group is looking closely at investment projects for next year. He said the group is ready to make adjustments to its plans depending on market circumstances, without losing sight of strategic objectives.

The group confirmed it expected to see a 750 million euro additional cost burden from raw materials in 2008.

The group's share ended Wednesday's session 8.28 percent higher, while the CAC-40 .FCHI index was up 9.23 percent, before the third quarter sales figures were released.

Michelin managing partner Michel Rollier confirmed earlier this month at the Paris Auto Show that the group was sticking to its 2010 profitability and growth objectives including a 10 percent operating margin target.

He also said it was too early to say whether the group would pay its shareholders a dividend for 2008. (Editing by Marcel Michelson and Andre Grenon)