UPDATE 2-Metro profits fall 35 pct as shoppers trim budgets
* Q3 sales 15.9 bln eur, in line with Rtrs poll avg
* Q3 adj EBIT 398 mln eur vs Rtrs poll avg 438 mln
* Sentiment in Germany worsening - CEO
* Shares rise 2.5 pct after opening lower (Adds CEO comments)
FRANKFURT, Oct 30 (Reuters) - German retailer Metro reported a bigger-than-expected plunge in quarterly profit as it cut prices to lure crisis-hit customers, and warned the outlook, even at home, was worsening.
Retailers across Europe have been feeling the pain as shoppers hit by rising unemployment, higher prices and low wage growth hold back on spending on non-essential items, especially on non food purchases such as electronics.
While Metro said it was especially southern and parts of eastern Europe that were responsible for the fall in profit, Chief Executive Olaf Koch said sentiment was also worsening in Germany, where recent data indicates that the debt crisis is finally catching up to Europe's largest economy.
Even though consumer morale rose unexpectedly going into November, German joblessness rose for a seventh month in a row in October, highlighting the vulnerability of Europe's biggest economy to the euro zone crisis.
Koch also cited a survey by retail association HDE last month that warned a slowdown was imminent.
In Germany, which is Metro's single largest market, the group reported a 2 percent fall in sales in the third quarter.
Koch said the group had spent around 200 million euros ($258 million) in the first nine months of this year on lowering prices at its cash and carry division and MediaMarkt-Saturn, Europe's largest chain of consumer electronic stores.
"All in all, the progress made could not compensate the worsening of trading conditions," he said.
Metro, which also runs hypermarkets and department stores, reported third-quarter earnings before interest, tax (EBIT) and special items of 398 million euros ($513.6 million), below average expectations for 438 million euros.
Sales for the period met forecasts at 15.9 billion euros.
Metro, which was demoted to Germany's second-tier share index in September after its shares lost a quarter of their value, had warned on 2012 profit earlier this month citing worsening conditions in Europe.
Its shares opened lower but reversed direction to trade up 2.5 percent by 1135 GMT after the group said it was assessing its options for the eastern European operations of the Real hypermarkets chain and was confident of reducing net debt to below 4 billion euros this year.
Selling the Real operations would follow similar moves from rival Carrefour, which has exited Greece, Singapore and Colombia and is also keen to sell operations in Poland and Turkey as part of a major restructuring programme.
Koch said the group would make a decision on whether to expand the Mediamarkt chain in China at the end of this year or the beginning of next. Many large retailers are rethinking expansion plans in China after being met with fierce competition.
Metro also confirmed its lowered profit forecast for 2012 of adjusted EBIT of around 2 billion euros for the year. It still expects a rise in sales from 2011's 66.7 billion.
Silvia Quandt analyst Mark Josefson said the group would need to repeat last year's fourth quarter profit, which came in at 1.3 billion euros, to achieve the target.
When asked about the Christmas outlook, Koch said the group felt well prepared in terms of stock levels and products, although southern Europe was not expected to improve. ($1=0.7749 euros) (Additional reporting by Daniela Pegna; editing by Jason Neely and Mike Nesbit)
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