UPDATE 2-Siemens orders tumble as Chinese projects dwindle

* Q3 group new orders 17.8 bln eur vs Reuters poll 19.55 bln

* Group revenues 19.5 bln eur vs poll 18.92 bln

* Loescher says focus now is on costs and productivity

* Industry Sector profit 523 mln eur vs poll 619 mln

* Industry Automation unit new orders down 1 pct

By Marilyn Gerlach and Jens Hack

FRANKFURT/MUNICH, July 26 (Reuters) - German group Siemens reported a big drop in quarterly new orders on Thursday as customers put off investments due to Europe's crisis, saying full year goals would be hard to meet as even major sales to China were becoming rare.

Europe's biggest engineering conglomerate still confirmed its net income target for the full financial year, d espite tough conditions in the global economy.

However, orders for the group - a barometer of future sales - tumbled 23 percent to 17.8 billion euros ($21.58 billion) in the April-June q u arter, missing a 19.5 billion euro average estimate made by analysts in a Reuters poll.

"The deceleration of the world economy has increased in the past few months," Chief Executive Peter Loescher said. "We see growing reluctance among our customers regarding capital expenditures and stronger economic headwinds, especially in our industrial short-cycle businesses."

The biggest market for Siemens is the euro zone, where the crisis in Spain, Italy and Greece has hit overall activity and confidence hard. However, the booming Chinese economy is also slowing, partly because Chinese factories - which often buy manufacturing equipment from companies such as Siemens - are finding it harder to export to the weak European market.

Loescher said conditions in China, which generates about 8 percent of group sales, were difficult. "Major orders from China are rare. That trend will continue at least until the end of 2012," he told CNBC.

"The outlook for China is mixed. In the business of rail and energy technology, there are no significant developments," he told reporters.

Fellow German company BASF, the world's largest chemicals maker by sales, also reported on Thursday that it was feeling the effects of slower economic growth in China.

"The Chinese growth engine has started to stall leading to a decrease in BASF's sales in local-currency terms in Asia," said Chief Executive Kurt Bock.

China's economy expanded at its slowest pace in more than three years in the second quarter of 2012, growing 7.6 percent from the same period a year earlier - just a whisker above the official government target for the year of 7.5 percent.

TOUGH TARGET

Closer to home, conditions are tough for German companies. Business activity in the 17 euro zone states shrank for a sixth straight month in July, with output in Germany's manufacturing sector contracting at its fastest pace in over three years and business sentiment dropping for the third month in a row in July.

Siemens confirmed its target for net income from continuing operations in the full financial year to September, which it slashed in April to 5.2-5.4 billion euros ($6.3-6.6 billion) from a previous guidance of at least 6 billion. But Loescher said: "Given the deteriorating environment it becomes more difficult to achieve our guidance for the fiscal year."

Analysts on average have said they see Siemens hitting only the lower end of the corridor, and some see it missing it altogether.

Profit at the Industry sector, usually the first at Siemens to suffer in any economic slowdown, dropped 26 percent to 523 million euros. However, its other four segments - Energy, Healthcare and Infrastructure - all posted profit increases in the quarter.

The company, which just lost its title as Germany's biggest company by market value to SAP, also cancelled plans to float its lighting unit Osram and said it would now spin it off instead.

FOCUS ON COSTS

The Industry sector - the bread and butter of Siemens - posted flat new orders, as Industry Automation orders fell for the first time in 10 quarters and demand for Drive Technologies continued to shrink.

Industry Automation's products include software that allows plant engineers to see what is happening on the factory floor on a single computer screen, and Drive Technologies makes gears, motors and drives.

Loescher said his focus was now above all on increasing productivity and efficiency, and he told CNBC in an interview that Siemens would target cost reductions in anticipation of slow growth in a volatile environment going into 2013.

But he sidestepped a question on whether Siemens would cut jobs as part of its efforts: "What we are looking at is getting out of this crisis more agile, faster and leaner as a company."

While the outlook is tough, group core operating profit in the quarter jumped 59 percent to 1.82 billion euros, mainly due to the absence of major one-time items that depressed earnings last year. Group sales rose 10 percent, faster than expected, thanks to a weaker euro.

Swiss rival ABB said earlier on Thursday that positive developments in China and the strength in the United States helped it grow more positive about the future, even though it missed expectations with its second quarter profit due to exchange rate fluctuations.

General Electric, a Siemens rival whose quarterly profit topped Wall Street's expectations on Friday, posted a lower-than-expected rise in revenues because of weakness in Europe, though U.S. demand boosted earnings.