UPDATE 1-Watchdog challenge to Saipem's accounts spooks investors
* Regulator sees new 130 mln euro charge on 2012 accounts
* Saipem defends 2012 accounting
* Concern of more provisions, profit warning - analysts (Recasts lead, adds analysts, shares)
MILAN, Aug 7 (Reuters) - Shares in Italian oil service group Saipem fell sharply on Wednesday as investors worried about whether a regulator's challenge to its accounting on eight contracts could be a prelude to a third profit warning.
Saipem, 43-percent owned by oil major Eni, said late on Tuesday that market watchdog Consob had started proceedings against it that could lead to adjustments for accounting inaccuracies in the contracts.
In particular, Consob said it had detected risks of possible losses totaling around 130 million euros ($173 million) on three of the contracts that needed to be included in its 2012 results.
The oil service group, once Europe's biggest, has lost almost half its market value this year after two profit warnings and a damaging corruption probe over business in Algeria that forced longstanding managers to step down.
At 0930 GMT Saipem shares were down 3.3 percent while the European oil and gas sector was down 0.6 percent.
"The problem is not the money but the news flow. It gives the idea that due diligence is not complete and that there's more provisioning to come and possibly a third profit warning," a Milan analyst said, asking not to be named.
A new management team under Chief Executive Umberto Vergine, which took the helm last December, set cleaning up the balance sheet as a priority and has been on a charm offensive with investors.
But a second profit warning in June due to increasingly strained relations with Algerian state energy company Sonatrach and project difficulties in Mexico and Canada was a setback.
"The market is wondering whether there's a third warning out there. The company needs to rebuild trust even though it's unlikely the new management omitted something," a second analyst said.
Consob said charges of around 500 million euros booked by Saipem in the first half of this year due to the June profit warning should have been booked against 2012 results. The first warning was in January
Saipem has defended its 2012 accounting, saying it saw no reason to recognize the alleged new losses on the three contracts.
The regulator also criticised the company's internal audit committee for not informing it of "irregularities" in a timely manner. In response to a request by Consob, Saipem said in April its auditors had found failings in the company's internal control system.
Consob will hear Saipem's arguments before making a ruling no later than June 2014.
($1 = 0.7513 euros) (Reporting by Stephen Jewkes; Editing by Erica Billingham)
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