UPDATE 3-HMV profit up, sees surge in Michael Jackson sales

* Year underlying profit 63 mln stg vs forecast 62 mln

* Sales of 'King of Pop's' music soar

* Year dividend kept at 7.4 pence a share

* Shares rise 1 percent

(Adds CEO, analyst comments, detail, background, shares)

By Mark Potter

LONDON, June 30 (Reuters) - Britain's HMV Group Plc (HMV.L) has seen an unprecedented surge in demand for Michael Jackson's music following the singer's death on Thursday, the retailer said, as it met forecasts with a 12 percent rise in profit.

Chief executive Simon Fox said the group saw an 80-fold jump in sales of Jackson's material on Friday from the day before, and that the week-on-week increase had been larger than following the deaths of Elvis Presley in 1977 and John Lennon in 1980.

However, the surge in demand, which has seen Jackson's "Number Ones" album rocket to the top of the charts, is unlikely to affect HMV's full-year performance, Fox said on Tuesday.

"Whether it's just a short burst, or how sustained it will be, we just don't know at this stage," he told reporters. "I don't think it will have a material affect on the business."

HMV, which runs music, DVD and video games shops under its own name as well as Waterstone's bookstores, made profit before tax and one-off items of 63 million pounds ($104 million) in the year ended April 25, just ahead of analysts' median forecast of 62 million in a Reuters Estimates poll of 18.

Sales from continuing operations rose 4.4 percent to 1.96 billion pounds as the 88-year-old firm took market share following the demise of smaller rivals Zavvi and Woolworths and benefited from strong sales of gaming and technology products.

The full-year dividend was kept at 7.4 pence a share.

KBC Peel Hunt analyst John Stevenson believes HMV could get an 11.5 percent sales boost this year -- "perhaps more" -- following the collapse of rivals, and that this should outweigh structural concerns about the decline of its core CDs market and growing competition from the Internet and supermarkets.

"We believe the shares have been oversold on longer-term concerns, while HMV is set to dominate through its 'last man standing' advantage on the High Street," he said.

HMV shares, which have underperformed the UK general retail index .FTASX5370 by 11 percent over the past year, were down 0.4 percent at 118.25 pence by 0845 GMT.

CHRISTMAS TIPS

HMV has responded to its long-term competitive challenges by cutting costs and widening its focus. It has entered the live music and ticketing markets, is trialling digital cinemas in partnership with Curzon and selling mobile phones in a deal with France Telecom's (FTE.PA) Orange.

Fox said Waterstone's new distribution centre had encountered a few teething problems, but this would not affect its cost-cutting plans for the current financial year.

He was also upbeat about the release schedule for the key Christmas trading period.

New works by Dan Brown and Robert Harris and an autobiography from Ozzie Osborne were likely to be among the best-selling books, while new albums from Madonna and the Arctic Monkeys could top the music charts, he said.

Top-selling DVDs should include the new Harry Potter and Ice Age films, while "Modern Warfare 2" and "Beatles Rock Band" were tipped to dominate in gaming, he added.

Britain's retailers have been struggling in the deepest recession for decades. Floor coverings retailer Carpetright (CATVU.L) posted a 72 percent plunge in full-year profit on Tuesday. [ID:nLT655563]

But there are signs consumer demand is at least stabilising. A poll by GfK/NOP showed British consumer confidence rose in June to its highest level for 14 months. [ID:nLT385627]

($1=.6076 Pound)

(Editing by Jon Loades-Carter, John Stonestreet and Mariam Karouny)