UPDATE 2-France Telecom reassures investors over dividend

* Sets dividend at 1.40 euro per share for 2010-2012

* Interim dividend of 0.60 euros to be paid in Sept

* Q2 EBITDA 3.98 bln eur vs consensus 3.95 bln eur

* Confirms full-year forecasts

* Shares rise 4.6 pct

(Adds analyst, share price reaction)

By Leila Abboud

PARIS, July 29 (Reuters) - France Telecom (FTE.PA), Europe's third-largest telecom operator by market capitalisation, soothed investor concerns about its payout policy by announcing a 1.40 euro per share dividend for 2010, 2011 and 2012.

Investors had feared in recent weeks that France Telecom would trim its dividend and offset the cut with a share buy-back programme.

Shares in the company were up 4.6 percent at 15.86 euros by 0810 GMT, outperforming a 1.4 percent firmer STOXX Europe 600 telecoms index .SXKP.

France Telecom shares have underperformed peers this year because investors are concerned about increased competition in its key home market, the group's limited ability to cut costs given its promises to French employees and its acquisition ambitions.

Chief Financial Officer Gervais Pellissier said the company's dividend announcement shows its commitment to shareholders at a time when the firm is embarking on a new strategic plan to grow its client base to 300 million by 2015, largely via acquisitions in emerging markets. [ID:nLDE66410W] [ID:nLDE6601C5]

"Our strategic plan included promises to employees and on hiring in the medium term, so the management decided it was also time to make a similar commitment to shareholders," Pellissier said.

France Telecom's dividend yield of 9.27 percent is higher than the sector average of 6.59 percent.

One Paris-based telecom analyst viewed the dividend news positively.

"It is somewhat of a surprise that they give the dividend level for three years, but it is certainly reassuring," the analyst said.

One trader wrote: "The lack of visibility and the uncertainty on this point [the dividend] had squeezed the share price up to now. This move can also be interpreted as a signal that shareholders will now be better treated."

The firm on Thursday posted slightly higher-than-expected second-quarter results despite intense competition at home.

Second-quarter revenue was 11.19 billion euros ($14.56 billion), while earnings before interest, tax, depreciation and amortisation (EBITDA) were 3.98 billion.

Ten analysts polled by Reuters had expected revenue of 11.05 billion euros and EBITDA of 3.95 billion.

Pellissier said France Telecom still expected revenue to be stable this year excluding the impact of regulatory changes.

"The economic environment remains fragile, with a recovery that is a little less strong than was expected at the end of last year," he said.

"But the trends we are seeing for the second half of the year are positive, similar to what we saw this quarter."

At Wednesday's close France Telecom shares were down about 13 percent since January, while the telecoms index .SXKP is down less than 1 percent. ($1=.7684 Euro) (Reporting by Leila Abboud; Editing by Geert De Clercq and Jon Loades-Carter)