UPDATE 1-Portugal Telecom in share buyback after dividend cut

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LISBON, June 27 (Reuters) - Portugal Telecom has halved its dividend as part of a plan to cut debt faster that, given the deteriorating domestic economy, will give it the flexibility to invest in its business.

PT also said on Wednesday it would partly offset investors' pain from the dividend cut to 0.325 euro by spending 200 million euros ($249 million) by end-2014 on a share buyback.

The company said it was financed until the end of 2015, helped by the launch of a 250 million euro four-year bond paying 6.25 percent and aimed at retail investors.

"The board of directors remains confident about Portugal Telecom's cash flow generation but a more prudent financial strategy substantially reduces financial risk," it said.

PT has been hit by a weaker market in recession-hit Portugal, whose internal consumption has plummeted amid rising taxes and deep spending cuts under the 78 billion euro IMF/EU bailout.

Its shares were up 3.0 percent at 1025 GMT, compared with a 0.4 percent higher Lisbon market PSI20.

"We would view this as a positive," Deutsche Bank analysts said in a research note.

"One of the main investor concerns has been PT's balance sheet as leverage remains high at 3.0 times net debt to EBITDA and PT was previously only fully financed until end-2013."

Last year, PT bought a stake in Oi, Brazil's largest telecommunications company, after losing out in a battle for mobile phone operator Vivo.

"The share buyback and cutting PT's dividend to about half of the previous figure is good for the company because the previous policy was dilapidating its assets," said Paulo Rosa, a trader at Go Bulling in Porto. ($1 = 0.8019 euro) (Reporting by Axel Bugge, Patricia Rua and Daniel Alvarenga; Editing by Dan Lalor)