* D.Telekom sees "almost stable" growth, shares down 1.9 pct
* T.Italia sets 2011-2013 targets, shares up 4.9 pct
* Telefonica results worse than expected, shares up 1.4 pct * Belgacom promises stable dividend, shares up 0.1 pct
(Rewrites, adds more analyst comment, Insider TV link)
By Nicola Leske and Sarah Morris
FRANKFURT/MADRID, Feb 25 (Reuters) - Spain's Telefonica (TEF.MC) and Deutsche Telekom (DTEGn.DE) cast more gloom over the European telecoms sector on Friday after producing lackluster results and lukewarm outlooks for 2011.
European telecoms companies face limited growth prospects in overcrowded domestic markets. Most have tried to compensate with overseas expansion, but with mixed success.
Investors increasingly see them as utilities with low valuations, low profitability and high dividend yields.
Telefonica, the eurozone's biggest telecoms firm by market value, faces the added pressure of Spains' macroeconomic problems. Its domestic business has been pummelled by the collapse of Spain's property boom, saddling Spaniards with debt and further intensifying competition in the telecoms market.
Telefonica's Spanish operations were worse than expected in the fourth quarter with sales down 5 percent but it managed to compensate for the drop with its business in Latin America, which now accounts for around 40 percent of sales.
It broadened its footprint in Brazil last when it bought telecoms firm Vivo VIVO4.SA.
Telefonica said it aimed to achieve a 2 percent increase in revenue this year and a core profit margin in the upper 30's.
Telecom analyst Javier Borrachero at Kepler Capital Markets said the revenue target was slightly higher than his 1.8 percent estimate. "If you can achieve that with Spain likely to remain poor for this year, that is a pretty decent figure."
Others were less benevolent.
"Unfortunately there is as little to inspire here as there has been in the other European mega-caps this morning," Investec Securities said in a note.
Telefonica shares were up 1.5 percent at 18.26 euros ($25.24) at 1137 GMT.
Telefonica's proposed dividend 1.60 euros per share, above expectations of around 1.40 euros, was met with scepticism.
"In our view, the announcement of the 1.60 euros dividend per share (dividend yield of 9 percent) is an attempt to sweeten up these results, which were not as good as expected," Virginia Perez Repes at ACF said.
Not all European carriers have been successful in compensating for sluggish growth at home with expansion abroad.
Deutsche Telekom did well at first with its purchase of U.S. carrier Voicestream more than a decade ago.
The business -- now called T-Mobile USA -- was the company's growth engine for some years but it has begun to sputter in the past quarters. Net customer additions were disappointing, analysts said, sending its shares down 1.65 percent.
Its southeast-Europe operations are worse off with a double-digit drop in revenue and core profit due to economic strains in Greece and Romania, plus regulatory cuts in roaming rates and interconnection fees.
Its domestic market, however, was stable in the fourth quarter thanks to sales of smartphones and data plans.
"We have battled through the headwind caused by the economic environment, special taxes in several countries and stiff competition," Chief Executive Rene Obermann said and promised "almost stable" growth this year. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For Insider TV interview, click link.reuters.com/suz28r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
Deutsche Telekom said it aimed to reach around 19.1 billion euros in adjusted core profit in 2011, slightly lower than 2010, and to generate free cash flow of at least 6.5 billion.
The dividend will be 0.70 euros per share compared with 0.78 in 2009, as announced a year ago
"The focus is very much on the outlook where we were expecting to see comments of ongoing deterioration, but management is promising 'almost' stability ... hardly inspiring," Investec Securities said.
MARKET FANCIES TELECOM ITALIA
Of the major European operators, only Telecom Italia excited investors on Friday after vowing to boost liquidity, slash debt and increase dividends over the next three years. Its stock shot up 4.8 percent. [ID:nLDE71O05I]
Robin Bienenstock at Bernstein Research called the outlook "modest and eminently achievable", and "prudent" in light of the the difficult macro-economic environment in Italy.
"We think the company can do better," she said, adding there might be less of a need for infrastructure upgrades next year.
But Investec called the plan uninspiring and said it offered no targets and no explanation of how it would deal with the domestic issues it had so far failed to address.
Telecom Italia, under pressure to turn around its domestic mobile operations, reported a 10.5 percent fall in 2010 revenues at the unit. The operations have struggled with a fierce price war with rivals Vodafone (VOD.L) and Wind.
On a smaller scale, Belgacom, Belgium's dominant telecom operator, forecast regulatory pressure would hit 2011 by about the same amount as last year, although it should be able to maintain its dividend. [ID:nLDE71N18I]
(Lisa Jucca in Milan and Deepa Babington in Rome, Robert-Jan Bartunek in Brussels. Editing by David Hulmes and Jane Merriman)