UPDATE 2-Danone warns of profit hit from Spain and materials

* Danone cuts 2012 operating margin goal

* Danone keeps 2012 sales growth, cash flow goals

* Danone CFO says may cut prices in Southern Europe

* Shares fall 6.9 percent

By Dominique Vidalon

June 19 (Reuters) - French food group Danone warned of a fall in profit margins due to rising materials costs and the deepening debt crisis in southern Europe, especially in Spain, and said it will have to cut prices to combat falling consumption.

The world's largest yoghurt maker, with brands like Actimel and Activia, said consumption in Spain and southern Europe have fallen more than expected since the end of the first quarter, while prices of key raw materials such as milk and packaging are rising more steeply.

Its shares fell more than 6 pct after the profit warning on Tuesday, effectively wiping out market capital of 2 billion euros ($2.5 billion) or spilling 3.1 bln bottles of Evian water.

Danone, which also sells Evian and Volvic waters, joined other European companies warning of a battle to cope with a slump in demand in Europe's most indebted countries, which also include Greece, Italy, Portugal and Ireland.

Europe's largest retailer Carrefour said last week it was pulling out of Greece and world No 2 truck maker Volvo said it was looking at abandoning planned increases in production in Europe..

The Paris-based group cut its 2012 target for operating margin to an expected 0.5 percentage point fall from a previous stable forecast, while holding its 5-7 percent like-for-like sales growth and free cash flow of 2 billion euros for 2012.

By 0855 GMT, Danone shares were down 6.9 percent at 48.34 euros. The warning also pulled Swiss food peer Nestle down 1 percent and Unilever down 1.9 percent.

Chief Financial Officer Pierre-Andre Terisse said that rising unemployment and higher taxes in Spain led to a drop in demand in the country which accounts for 7 percent of group sales and is one of Danone's top worldwide markets.

"Consumers are looking for cheaper products," he told a conference call, adding that Danone would respond with price cuts but that it was too early to provide details.

Terisse said Danone's milk and packaging cost were currently running 1-2 percent higher in Europe after the group had expected costs to remain stable at their end-2011 levels.

Analyst Andrew Wood at brokers Bernstein said Danone's warning raised questions over the credibility of its forecasts after a number of surprises such as the hefty price it paid for Numico in 2007, and its 2009 shock rights issue and price cuts.

"Clearly management credibility is likely to take as much, if not more, of a hit than its EPS following today's warning," he said, adding that the warning would represent about a 5 percent cut to his 2012 forecast.

Natixis analyst Pierre Tegner added: "On the food sector we think that this warning will put pressure on Unilever, whose margin guidance (steady margin improvement) is also challenging."

Other analysts said they did not expect similar profit warnings at Unilever and Nestle due to the former's higher exposure to fast-growing emerging markets and the latter's wider spread of global businesses.

Danone said demand outside Western Europe in Asia, America, Africa, Russia and the Middle East remained robust.