* FY 2013/14 underlying profit up 2 pct vs avg estimate 1.8 pct
* Eyes gradual improvement in China sales, sees soft U.S.
* Eyes around 900 job cuts worldwide under cost savings plan
* Shares up 1.7 pct, hit highest level since October (Recasts with deputy CEO comments in interview, adds share price)
By Dominique Vidalon
PARIS, Aug 28 (Reuters) - French spirits maker Pernod Ricard SA has forecast a recovery in sales in its second-biggest market China, dogged for years by a clampdown on the purchase of expensive gifts such as whisky and cognac, helping send its shares to a 10-month high.
The world's second-biggest spirits group behind Britain's Diageo Plc said on Thursday it expected sales to gradually improve this year, notably in China, offsetting slow growth in its top market the United States.
The group also vowed to push ahead with cost savings which it plans to partly reinvest to support the promotion of its brands, telling Reuters it could cut about 900 jobs worldwide, or 5 percent of its workforce. It gave no details on when or where the job cuts would be made.
The owner of Mumm champagne, Absolut vodka and Martell cognac made the predictions after reporting full-year underlying profit growth of 2 percent, broadly in line with analysts' average estimate of 1.8 percent.
Pernod tied the performance to strict cost control as sales for the year through June fell 7 percent, hit by unfavourable currency effects and a 23 percent slump in China sales. Like-for-like group sales were stable.
"In this context, which remains challenging, we anticipate a gradual improvement in our sales growth, and we will increase the investment behind our brands and priority innovations in order to sustain long-term growth," Deputy Chief Executive and Chief Operating Officer Alexandre Ricard said in a statement.
Pernod shares were up 1.7 percent by 0944 GMT, outperforming a 0.2 percent decline in the European sector . The stock rose as high as 90.45 euros, its highest since October.
"Full-year results are in line, China (is) improving, U.S. worsening," Societe Generale analysts said in a note, retaining a "buy" rating on the stock.
Like rivals Diageo and Remy Cointreau SA, Pernod has been hit by a Chinese government crackdown on luxury gift-giving and personal spending by civil servants, as well as by slowing economic growth in its second-biggest market.
Pernod Ricard makes 12 percent of sales and 15 percent of profit in China, its largest market after the United States. Asia as a whole accounts for around 40 percent of sales and 46 percent of profit.
In the fourth quarter, the situation remained tough in China, where sales slumped 38 percent like-for-like after falling 28 percent in the previous three months as de-stocking continued. But there were signs of an upturn.
Ricard told Reuters that Martell cognac depletions, or sales by wholesalers to bars, restaurants and retailers, were down 7 percent in the first nine months of the year but rose 5 percent in the fourth quarter.
"The fourth quarter is showing some positive signs and July and August confirmed this trend," he said, adding that the improvement in China could become more visible in the second half of the group's fiscal year.
The U.S. market, where sales growth slowed to 1 percent from 8 percent the previous year, was a weak spot, however, forcing the group to carry out hefty de-stocking in the fourth quarter.
Jameson whiskey continued to show good growth in the United States, with a 15 percent sales rise, but Absolut vodka sales were down 2 percent, partly due to price competition.
Pernod said it would push ahead with its already announced "Allegro" plan to improve efficiency and save 150 million euros ($198 million) over three years. At least one third of proceeds would be partly reinvested to support brand development.
Ricard said 30 million euros in savings were made in the 2013/14 year and a further 75 million should come this year.
At end-June, net debt was down 374 million euros at 8.4 billion.
Since spending 5.6 billion euros on Absolut Vodka parent V&S in 2008, the company has focused on cutting debt, ruling out large transforming deals to focus on small tactical purchases.
Pernod was, however, recently cited among potential buyers for Australia's Treasury Wine Estates Ltd, the world's No. 2 winemaker, whose books are being perused by U.S. private equity firms KKR & Co and TPG Capital Management for rival $3.1 billion takeover bids.
Ricard told Reuters he was not interested in making a bid. (1 US dollar = 0.7588 euro) (Additional reporting by Pascale Denis; Editing by James Regan and David Holmes)