UPDATE 4-Holcim sees govt money lifting sector in 2010

* Holcim Q2 profit 453 mln Sfr vs forecast 415 mln Sfr

* Says govt stimulus packages to boost sector in 2010

* Raises cost-cutting target

* Shares rise some 5.88 pct, news pulls rivals higher

(Adds CEO comments, analyst comment, background)

By Katie Reid

ZURICH, Aug 20 (Reuters) - Holcim (HOLN.VX), the world's second-largest cement maker, said government stimulus packages in the U.S. and Europe would boost the construction industry next year after the downturn in the United States eased in Q2.

The group beat forecasts with a 35 percent drop in second-quarter net profit, as operating results recovered in the months of May, June and July after a harsh winter weighed on first-quarter figures.

By 1130 GMT, shares had soared 5.88 percent to 69.30 swiss francs after the group said second-quarter net profit fell to 453 million Swiss francs ($421 million), ahead of an average estimate of 415 million francs in a Reuters poll.

"We maintain our buy recommendation on the back of the solid set of quarterly figures, the number of worldwide initiated stimulus packages, the comparably good geographical business setup and the solid balance sheet," Sarasin analyst Oskar Schenker said in a note.

The news pulled up shares in larger rival Lafarge (LAFP.PA) and Germany's Heidelberg (HEIG.DE), which were both trading some 4 percent higher.

Holcim cautioned it still expects conditions in the United States, the UK and Eastern Europe to remain challenging as fewer houses go up, and said it was raising its 2009 cost-cutting target to 600 million francs after targeting 375 million.

The economic downturn has caused property prices to slump, choking off growth in the construction industry, especially in industrialised markets.

Lafarge gave a bleak outlook last month, cutting its 2009 forecast for the global cement market, while Heidelberg Cement has said it expects its 2009 sales and operating profit to fall. [ID:nLU211600] [ID:nWEA3446]

Demand in emerging markets like Asia, India, Latin America and the Middle East, was, however, likely to offset the negative operating development in the mature markets, Holcim said.

"The recovery is likely to come in the course of 2010 or 2011. This applies to the North American, West European and East European markets," Chief Executive Markus Akermann told reporters. "Growth will continue in the developing markets. Asia will be the locomotive of the world economy."

Emerging markets account for some 75 percent of Holcim's cement capacity and the group is set to gain from increased spending on infrastructure in markets like India, which is investing in railways, shopping centres and airports.

COST CUTTING PAYS

Net sales fell 20 percent, but cost-cutting measures, such as plant closures and job cuts, helped lift its operating EBITDA margin to 24.8 percent from 16.9 percent in the first quarter.

"Everyone is working on leaner structures," Akermann told Reuters.

"We see we can extract more potential and for that reason we have a (savings) target of 600 million francs," he said, adding that steps taken in the first six months would also have a positive impact in the second half of the year.

Holcim cut fixed costs by 381 million francs in the first-half.

Five-year credit default swaps on Holcim tightened by around 5 basis points to 190 basis points, according to Markit data after the group said it had refinanced debt of 5 billion francs since the beginning of the year.

Holcim, which this year bought debt-laden Cemex's (CX.N) Australian business for A$2.02 billion, said it would first focus on integration of its latest buy and expanding capacity before going for more purchases.

"We have strict austerity with regard to investment. We still have various millions of tonnes of capacity to build," Akermann said. "It requires a lot of attention and work because it is in the pipeline and this has priority before we talk about acquisitons."

Holcim trades at nearly 16 times expected 2010 earnings, while Lafarge trades at 12 times, according to Reuters data. (Additional reporting by Jane Baird in London; Editing by Rupert Winchester and Mariam Karouny) ($1=1.076 Swiss Franc)