UPDATE 1-Australia's Leighton CEO King ends 23-year reign

* David Stewart to take over as CEO on January 1, 2011

* King to stay on as consultant

* Leighton shares up 2 percent, outpace broader market (Adds fund manager comment, details on Leighton, share price)

MELBOURNE, Sept 13 (Reuters) - Top Australian contractor Leighton Holdings (LEI.AX) eased out Chief Executive Wal King after 23 years, promoting another company veteran into the top job on Monday.

Leighton, majority owned by German construction group Hochtief (HOTG.DE), said David Stewart, currently co-chief operating officer, would take over on January 1, 2011.

King, 65, known for his heli-skiing adventures, is synonmyous with Leighton in Australia, having grown the company from a small Melbourne-based construction group with a profit of A$7 million in 1987 into the world's largest contract miner, with a net profit of A$612 million ($567 million) in 2010.

He will stay on as a consultant.

King's fate has been played out in the media over the last several months, with speculation that Hochtief was pushing for him to retire. At Leighton's results in August, King declined to comment on his future.

The company was forced to issue a statement in August saying detailed succession planning had been underway for the past two years. Independent directors were quoted in the media last week saying it would be best if King retired gracefully.

Leighton shares rose 2.2 percent to A$34.09 on Tuesday, but did not move much after the announcement, which had been expected.

Stewart comes in at a time when Leighton's shares have been underperforming the market, due to uncertainty surrounding one of its biggest mining contracts, at BHP Billiton's (BHP.AX)(BLT.L) iron ore mines in Western Australia, the impact of a new mining tax in Australia, and troubled projects in the Middle East.

The BHP Billiton contract could come under review if BHP goes ahead with a planned iron ore joint venture with Rio Tinto (RIO.AX)(RIO.L) and moves toward Rio's practice of using its own workers, rather than contractors at its mines.

A Leighton investor said Stewart, 57, was a reasonable choice to replace King.

"He's competent. He probably just doesn't have the market presence," said Jason Beddow, chief executive of Argo Investments (ARG.AX), which owns Leighton shares.

"He's got a good handle on operations. You need an operational person running a contracting business," he said, ahead of Stewart's appointment.

Under King, the group was aspiring to reach A$50 billion of work in hand and A$30 billion of revenue, with a 47 precent jump in profit after tax to A$900 million in the next five years. (Reporting by Sonali Paul; Editing by Ed Davies)