UPDATE 4-Telefonica H1 prompts fears of credit downgrade

* Net profit 3.16 bln euros vs 3.13 bln euros in Rtrs poll

* Revenue 30.89 bln euros vs 31.08 bln euros in Rtrs poll

* Some see risk to A- credit rating

* Shares close down 0.48 pct (Adds comments from conference call, updates shares)

By Elisabeth O'Leary and Robert Hetz

MADRID, July 28 (Reuters) - Telefonica SA , the euro zone's largest telecoms company, suffered a decline in first-half profit as hard pressed consumers switched to cheaper providers and regulators pushed tariffs lower.

While lucrative smartphone growth drove a continued boom in Brazil, the business turned in a lacklustre performance in its home market of Spain, and also in Britain, Mexico and Venezuela. Some analysts noted a risk to Telefonica's A- credit rating.

"With leverage moving in the wrong direction in a scenario where Standard & Poor's requires deleveraging as a condition to maintain the current ratings, we see growing risks to (Telefonica's) A- status," said Juliano Hiroshi Torii, credit analyst at Societe Generale after the company's first half results on Thursday.

An economic crunch and unemployment of over 21 percent in Spain has sent the former monopoly's clients to cheaper alternative operators. In Britain the company said an increasingly complex competitive backdrop saw revenue per user decline, while tariff cuts were the issue in Venezuela and Mexico.

Robin Bienenstock, analyst at Bernstein Research, has a bearish 13 euros per share target on Telefonica stock and has long argued that its dividend policy is not sustainable.

"We continue to think Telefonica will miss one, and possibly both, of its key promises: ... that they would not pay their dividend out of debt and that their debt level would remain below 2.5 times EBITDA at year end."

Overall, first-half net profit fell 16.3 percent to 3.16 billion euros ($4.5 billion), in line with forecasts, although revenue was below consensus.

The company's shares closed down 0.48 percent to 15.645 euros, underperforming a 0.86 percent rise in the STOXX Europe 600 telecoms index , but off an early low of 15.38 euros.

DEBT WORRIES

Despite the debt concerns, Telefonica told analysts it still expected to meet its debt pledges.

Telefonica has a net debt of 55.59 billion euros, up 826 million euros since year end. The sale of call centre unit Atento -- cancelled because of adverse markets last month -- was one way it had planned to whittle down its burden.

Telefonica said it would reconsider floating Atento once market conditions improve. Spanish bank Santander said on Wednesday it was putting off the listing of its British and Argentine units because of turbulent markets.

Europe's second largest telecoms company has promised a dividend of 1.75 euros per share in 2012 and has set a minimum shareholder remuneration target of 1.75 euros per share from then on.

Group revenue rose 6.3 percent overall, below analyst expectations. Revenue fell in Spain by 6.1 percent while in Brazil it rose 46 percent. Chairman Cesar Alierta predicted Brazil alone would soon become the group's main revenue driver.

Markets shrugged off news the merger of fixed and mobile units in Brazil would produce more than $1 billion more savings than originally expected.

Telefonica is about to shed about 20 percent of its workforce in Spain because of declining revenue and a costly fixed-line operation.

It said earlier this month it would take a 2.7 billion euro charge for early retirements, also paying unemployment benefit for those laid off.

Telefonica said it would have 1.4 billion euros of excess cash at the end of the workforce reduction plan. (editing by Jane Merriman and Andrew Callus) ($1=.6884 Euro)