UPDATE 2-KGHM disappoints as Q3 net profit halves

* Net profit 382 mln zlotys ($137.7 mln) vs expected 460 mln

* Sales of 2.64 bln zlotys

* Shares fall as much as 3.7 percent (Releads, adds analyst quote, shares)

By Adrian Krajewski

WARSAW, Nov 13 (Reuters) - KGHM KGHM.WA, Europe's No. 2 copper producer, reported third-quarter net profit below forecasts as hedging and currency losses offset climbing metal prices, dragging its shares as much as 3.7 percent lower.

The Polish miner, whose shares have nearly quadrupled in price this year thanks to recovering copper prices, had hedged a quarter of its annual production to secure itself against a potential price drop, but commodity valuations continue to soar.

Investors were disappointed by the state-controlled group's update of its forecasts on Thursday, which analysts said brought its targets only to a "worst case" level.

"The market has probably not expected such big losses on hedging and foreign exchange, so this is negative," said KBC Securities analyst Robert Maj. "Yesterday's forecast upgrade by KGHM was also disappointing."

By 0836 GMT, KGHM shares pared back some of the losses and were down 1.9 percent at 106.50 zlotys, valuing the company at $7.7 billion. The stock was the worst performing member of Warsaw's main WIG20 index .WIG20.

KGHM net profit fell 47 percent to 382 million zlotys versus 460 million expected by analysts. Sales fell 3 percent to 2.64 billion zlotys.

On Thursday KGHM raised its 2009 net profit guidance by 15 percent to 2.25 billion zlotys propped up by higher revenue and average copper prices expectations, but most analysts said the new target remained conservative. [ID:nLC140241]

In August, KGHM hedged 108,000 tonnes, about a quarter of its annual production, for the rest of this year at an average price in the range $4,500 to $4,700 a tonne. It added it may see negative results if prices significantly exceed $6,000.

KGHM has benefited from resurgent copper pricesMCU3, which have more than doubled to above $6,500 a tonne, boosted mainly by Chinese buying and dollar weakness.

Foreign exchange losses and the negative value of derivative instruments swung KGHM result on other operating activities into a loss of 294.3 million zlotys.

"I expect that the result from other operating activities might be repeated in the fourth quarter," Maj said. ($1=2.757 Zloty) (Reporting by Adrian Krajewski; Editing by David Cowell)