* 1st-quarter gross profit falls 3 pct
* Gross profit from permanent hires down 12 pct
* Gross profit from contract hires up 6 pct
* Analyst says FY gross profit could rise 2 pct
By Richa Naidu
March 8 (Reuters) - Staffing company SThree Plc said first-quarter gross profit fell 3 percent as employers in Britain and continental Europe continued to shy away from recruiting permanent hires.
Gross profit, or net fee income - a relevant performance indicator for recruitment companies - fell to 45.5 million pounds ($68.5 million) in the first quarter ended Feb. 24 from 47.7 million pounds a year earlier.
Gross profit in SThree's permanent hiring business fell 12 percent to 20.9 million pounds, offsetting the 6 percent growth in contract hiring to 24.5 million pounds. The permanent hiring business contributes about half of its gross profit.
Last month, 29.7 million people had jobs in the United Kingdom - its highest employment level ever - driven by contract and part-time hires. However, permanent placements have been declining due to low business confidence.
Shore Capital analyst David O'Brien said SThree's gross profit could rise 2 percent in the year ending November, if contract hiring continues to build strongly.
In fiscal 2012, Sthree's gross profit rose 5 percent to 205.3 million pounds.
SThree, which recruits for the information technology, financial, energy and pharmaceuticals industries in continental Europe and the United Kingdom, said its permanent hiring deal pipeline was down 13 percent, a steeper decline than the 4 percent it reported in fiscal 2012.
However, O'Brien said the UK-European permanent hiring market was at the worst point and by the fourth quarter, Sthree's permanent hiring business could be flat on the previous year.
Rival Pagegroup, formerly known as Michael Page International Plc, reported on Tuesday a 24 percent fall in profit and forecast a challenging 2013 after recession-weary employers in Europe cut back on permanent staff.
SThree's shares were down about 2 percent at 359 pence at 1143 GMT on the London Stock Exchange on Friday.