UPDATE 3-ITT raises year profit view, douses deal talk

* Q3 adjusted EPS $1.03; Street view 90 cents

* Indicated Q4 profit below Street estimates

* Company explains extended quiet period

* Shares down 6.9 pct

(Adds company comment, segment sales)

ATLANTA, Oct 30 (Reuters) - Diversified manufacturer ITT Corp (ITT.N) posted better-than-expected third-quarter earnings on Friday and raised its full-year outlook, but implied fourth-quarter profit was below current analyst estimates and the company's shares fell nearly 7 percent.

J.P. Morgan analyst C. Stephen Tusa said in a note to clients on Friday that ITT's fourth-quarter outlook, weaker defense orders and "expectations that there may have been a strategic acquisition in the pipeline" could hurt the stock.

An Oct. 19 Bloomberg report said a takeover or break-up of the company could be in the offing, quoting a research note from an analyst. The report mentioned that the company had been silent in recent weeks. ITT shares closed up 4 percent at $56.63 on that day.

During its earnings conference call on Friday, the maker of water pumps, night-vision goggles and other military equipment quashed speculation that a takeover of the company or some other transaction was in the works.

ITT Chairman and Chief Executive Steve Loranger said the company had lengthened its quiet period because it was finalizing estimates for asbestos liability claims that resulted in a third-quarter charge and could affect future periods.

"Even though we were aware that there was some misguided speculation out there during the past few weeks of the quiet period, we did not feel at all inclined to comment," Loranger said.

The maker of military equipment and wastewater pumps said net income was $59 million, or 32 cents a share, for the third quarter, down from $216.3 million, or $1.17 a share, a year earlier.

The latest results include a charge of $131 million, or 71 cents a share, tied to asbestos claims associated with older ITT products.

Adjusted for special items, income from continuing operations for the quarter was $1.03 a share. On that basis, analysts expected 90 cents a share, according to Thomson Reuters I/B/E/S.

Quarterly revenue fell 6 percent to $2.7 billion, about in line with analysts' expectations.

Defense sales rose 2 percent, but revenue fell 13 percent and 22 percent in the fluid technology and motion-and-flow control segments, respectively.

ITT said it expects organic revenue growth of 3 percent for defense this year, down from about 4 percent forecast in late July. The company said it expects modest overall sales growth in 2010 and added that its defense segment could post modest earnings growth.

The company expects 2009 earnings of $3.70 to $3.74 a share excluding one-time items, up from a prior view of $3.50 to $3.70. That suggests fourth-quarter profit of up to 93 cents a share, compared with analysts' average forecast of 98 cents.

ITT shares were down $3.77, or 6.9 percent, to $50.59 on the New York Stock Exchange. (Reporting by Karen Jacobs; editing by John Wallace and Gunna Dickson)