* Iberdrola sees 2010-2012 annual profit growth below 5 pct
* Centrica promises improved earnings growth in 2012
* Downstream business hurt by weak power demand
* Spain's Gamesa also cuts 2012 targets
* Iberdrola, Gamesa shares down; Centrica up
By Tracy Rucinski and Adveith Nair
MADRID/LONDON, Feb 23 (Reuters) - Two of Europe's biggest power companies felt the chill on Thursday of depressed demand from customers struggling with austerity and fragile economies.
Iberdrola, Spain's largest utility, cut 2012 targets after growth in Brazil and expansion into markets with regulated tariffs barely offset weakness in its home market and the UK, where it owns Scottish Power.
Britain's Centrica, which owns the UK's biggest household energy supplier British Gas, said lower consumption pegged back growth in 2011 as higher prices and mild weather drove down power use.
Centrica said it expected to do better this year, helped by higher profits from its exploration and production business in oil and gas.
European utilities have been scrambling to shield themselves from declines in falling energy demand as consumer and industry spending is pinched by rising prices, unemployment and government budget cuts.
Some, like Iberdrola, have tried to tap into faster-growing emerging markets such as Brazil. Centrica, meanwhile, said it would focus on growing its upstream business through acquisition and organic development.
Shares in the two companies underscored their diverging 2012 outlook, with Iberdrola losing 3.8 percent to 4.49 euros by 1501 GMT while Centrica gained 1 percent to 296.2 pence.
Iberdrola, overshadowed by a Spanish economy which threatens to slip into recession for the second time in four years, posted a slight decline in 2011 net profit.
The company has been expanding in semi-regulated sectors like wind power, where it is a world leader, as well as in the growing business of power networks.
But strength in Brazil, where it acquired Elektro last year, and other regulated markets could not offset a weak fourth quarter for UK generation and a disappointing renewables performance in Spain and the United States.
Iberdrola cut its 2010-2012 recurrent net profit target to under 5 percent growth and its EBITDA growth target to about 5 percent, compared with previous guidance of 5-9 percent average annual growth in both measures.
The company, which is 19 percent owned by Spanish builder ACS and 8.4 percent by a Qatari fund, said the new forecasts would help it maintain its dividend policy.
Spanish peer Gamesa -- which is 20 percent owned by Iberdrola and competes with Denmark's Vestas -- cut its expectations for wind turbine sales, sending its shares down 9 percent.
Its growth in emerging markets like China, India and Brazil has come at the expense of increasing debt more than investors are comfortable with.
CENTRICA BETS ON UPSTREAM
Centrica, already the third largest producer of gas on the UK continental shelf, said it would increase upstream UK gas and oil production by more than 25 percent this year, a move analysts said could help it deliver on a target to improve year-on-year earnings growth for 2012.
"In our upstream UK business, we will progressively benefit from the higher wholesale commodity price environment," the company said. "We will also benefit from the recently acquired gas and oil assets in the North Sea."
Centrica added that its focus would remain on growing the upstream business through acquisition and organic development.
The company, which spent 1.6 billion pounds in 2011, said it expects to invest 1.4 billion in this year, with half of that on the upstream gas and oil business.
REGULATORY LIMBO CLOUDS SPAIN
Iberdrola's conference call with investors was dominated by uncertainty over how the government will fix 24 billion euros of debt owed to utilities after 10 years of selling power at regulated prices that do not cover costs.
The government has promised to take steps to prevent the debt growing another 4-5 billion euros this year.