UPDATE 5-MasterCard sees higher marketing costs, stock down

* Q3 adjusted EPS $3.48 vs Street view of $2.94

* Revenue up 2 pct to $1.4 bln

* Sees higher marketing expenses, rebates and incentives

* Shares fall almost 6 pct, but end down 1.55 pct (Recasts first paragraph, adds analyst comments, updates stock price)

By Juan Lagorio

NEW YORK, Nov 3 (Reuters) - MasterCard Inc (MA.N), the world's second-largest credit card network, forecast marketing expenses will increase 20 percent, and rebates and incentives will go up in the fourth quarter, sending shares down up to 6 percent.

MasterCard's outlook overshadowed better-than-expected quarterly earnings boosted an aggressive 29 percent cut in marketing expenses, higher fees to banks, and a more intense use of debit cards.

"The quarter was a blowout, but then they did caution that marketing expenses are going to be up significantly in the fourth quarter and the rebates and incentives are also going to be up significantly in the fourth quarter," said Greg Smith, an analyst at investment bank Duncan Williams.

"The quarter wasn't quite as good as it looked when taking into the context much higher marketing expenses and rebates and incentives in the fourth quarter," Smith said. "While they dramatically beat third quarter expectations, you will probably see analysts lowering estimates for the fourth quarter."

MasterCard's third-quarter net income was $452 million, or $3.45 per share, compared with a loss of $194 million, or $1.48 per share, a year earlier.

Excluding special items, the credit card network posted earnings per share of $3.48, beating analysts' forecast of $2.94, according to Thomson Reuters I/B/E/S.

The company said special items for the third quarter of 2009 represented $6.2 million of litigation settlement charges. The special item for the third quarter of 2008 represented an $827.5 million net pre-tax charge related to an antitrust litigation settlement.

Revenue rose 2 percent to $1.4 billion, and also beat analysts' forecast, boosted by higher fees charged to banks and increased consumer use of credit and debit cards. These factors were partially offset by the impact of slightly lower cross border volumes.

But operating expenses declined 13 percent to $685 million, driven by higher-than-expected cuts in expenses and a reduction of 7.9 percent of personnel and administrative costs.

Processed transactions grew 7.6 percent in the quarter to 5.8 billion boosted by a more intense use of credit and debit cards in Asia Pacific, Middle East, Africa and Latin America.

MasterCard's gross dollar volume was up 0.3 percent on a local currency basis to $633 billion.