UPDATE 1-Harvey Nash Q3 sales, profit up, confident on year

* Q3 pretax profit up 23 percent

* Says trading cash flow well ahead of budget

* Lower demand for permanent staff offset by IT outsourcing

(Adds reaction)

LONDON, Nov 28 (Reuters) - British recruitment and outsourcing firm Harvey Nash (HARV.L) posted a 23 percent increase in third-quarter pretax profit on Friday as IT outsourcing countered a downturn in permanent recruitment.

The company said revenue in the period to end-October was up 34 percent, reflecting a good performance in the United States, UK and Ireland, and mainland Europe.

It also said trading cash flow was well ahead of budget, and its financial position at Oct. 31 had improved against budget and last year.

"The current market conditions provide the group with excellent opportunities to grow our blue-chip global client base and leverage the group's success in the outsourcing and off-shoring market," the company said in an update.

"Accordingly, the board remains confident of further progress for the year-ended Jan. 31 2009."

Seymour Pierce analyst Kevin Lapwood, who has a "buy" rating on the shares, said Harvey Nash had delivered an "excellent performance", which had been achieved across the geographical spread of the company's activities.

"The shares are trading on a very undemanding 2.9 times EPS and yield 8.2 percent," he said. "They should go better on this news."

The shares were unchanged at 24.5 pence at 0847 GMT, valuing the group at 17 million pounds ($26.2 million). (Reporting by Paul Sandle; Editing by Victoria Bryan)