UPDATE 2-Telecinco net beats forecasts, sees end to ad drop

* Net profit beats forecasts

* Revenues meet forecasts, but advertising still weak

* Cost-cutting improves performance

* Rival Antena 3 ad revenue improves in Q3

* Shares end up 9.75 pct, Antena 3 up 16.45 pct (Adds drop in advertising, Antena 3 conference call comments)

By Elisabeth O'Leary

MADRID, Oct 29 (Reuters) - Advertising dropped more than 40 percent at Spanish broadcaster Telecinco (TL5.MC) during the first nine months of the year, but cost-cutting helped it post forecast-beating profit.

Net profit fell to 62.2 million euros ($92.28 million), better than forecasts in a Reuters poll for 41.3 million euros, while total net revenues fell 41.2 percent to 432.3 million euros compared with a forecast for 431 million euros.

Television advertising income, the mainstay of free-to-air TV, remained weak and fell 41 percent to 406.5 million euros.

Telecinco executives were cautiously upbeat about the outlook, given that Spanish state TV (TVE) is to stop showing advertising on its channels from January, and it hopes to benefit from higher prices as it soaks up some of TVE's slots.

"We think that the decline in (advertising) prices will stop next year," Managing Director Massimo Musolino said on a conference call.

Musolino declined to quantify any price rises Telecinco might charge advertisers after a fall in prices of about 30 percent in the past year and as Spain's recession deepens.

Telecinco has suffered a slump in its audience share as it has battled to keep up with competitors during the recession, but recently has fought back and in September was the most-watched channel for the first time in nine months.

Shares in Telecinco and smaller rival Antena 3, which also posted results on Thursday, closed higher after the news, helped by a short squeeze and the perception that the outlook was improving, analysts said.

Telecinco ended 9.75 percent higher at 7.70 euros while Antena 3 closed up 16.45 percent at 6.30 euros.

Antena 3 (A3TV.MC) announced separately a 73.6 percent fall in net profit in the nine months to September to 18.9 million euros.

Advertising income remained weak, but improved to a 11.6 percent fall in the third quarter versus a 26.6 percent fall in the second, marking a sharp contrast with Telecinco.

In a conference call, Antena 3 management said it expected advertising sales to steady in the fourth quarter thanks to expanded advertising space on its programmes and less severe pricing cuts.

Costs at Telecinco fell nearly 15 percent, it said.

Earnings before interest, tax, depreciation and amortisation fell 73 percent to 88.96 million euros, beating the consensus forecast for 83.5 million euros. ($1=.6740 Euro) (Additional reporting by Robert Hetz, Tracy Rucinski; Editing by Simon Jessop, Jon Loades-Carter, Leslie Gevirtz)