* Net profit down 25 pct on weak power generation market
* Sees no sign of improvement, takes 441 mln euro impairment
* Shares up 5 pct as firm maintains earnings guidance
* EU utilities struggle with overcapacity, slack demand (Adds CEO, CFO, analyst comments, detail, background, shares)
By Geert De Clercq
PARIS, Aug 1 French gas and power group GDF Suez posted a 25 percent drop in first-half net profit on Thursday and said it saw no sign of improvement in Europe's power generation market, where utilities are struggling with overcapacity and slack demand.
But shares in Europe's second-biggest gas and power company by market value after French rival EDF rose more than 5 percent as the firm kept its full-year earnings guidance and said its emerging markets business was going strong.
European power demand has been falling since 2008 because of a weak economy and rising energy efficiency.
On the supply side, solar and wind energy have shaken up utilities' traditional model of centralised power generation in nuclear and fossil fuel-fired plants, while imports of cheap coal from the United States are making recently built gas-fired power plants uneconomical to run.
"The group is evolving in a still uncertain and challenging economic environment, particularly in power generation in Europe where depressed market conditions do not yet offer any sign of improvement," GDF Suez said.
Last week, Sweden's Vattenfall, one of Europe's biggest energy firms, wrote down the value of its business by $4.6 billion, saying there was no recovery in sight for Europe's ailing electricity markets.
Austrian hydropower firm Verbund also blamed its operating losses on upheaval in electricity markets as it struggled to compete with heavily subsidised renewable energy sources.
German utilities E.ON and RWE report earnings on Aug. 13 and 14 respectively.
Chief Executive Gerard Mestrallet said on a conference call that, given the difficult circumstances, GDF Suez coped relatively well, thanks to an unusually cold winter and spring and growth in its business outside Europe.
First-half net profit fell to 1.7 billion euros ($2.3 billion) as the group took 441 million of impairments on assets and goodwill.
The company nonetheless said it was confident its net recurring income - down 1.7 percent to 2.4 billion euros in the first half - would reach its full-year target of 3.1 billion to 3.5 billion euros. In 2012, it stood at 3.8 billion euros.
"There is a higher probability to be closer to the upper end of this range than to the bottom of this range," chief financial officer Isabelle Kocher said.
Core profit, or earnings before interest, tax, depreciation and amortisation (EBITDA), fell 6.6 percent to 7.6 billion euros, while revenue fell 1.5 percent to 42.6 billion.
Brian Garnier analyst Julien Desmaretz said in a note the earnings were solid and in line with expectations at the EBITDA level and slightly ahead at recurring net income.
In GDF Suez's key European business, core earnings fell 15.5 percent to 2.1 billion euros, despite the cold winter and spring and despite higher gas tariffs in France.
French wholesale forward electricity prices, at around 42 euros per megawatt-hour, are at their lowest levels since 2005.
GDF Suez has closed or mothballed 12 gigawatts of electricity capacity - the equivalent of about 12 nuclear plants - since 2009 as its gas-fired plants cannot compete with cheap coal imported from the United States.
It mothballed 1.6 gigawatts in the first half and has put another 2 gigawatts under review - its gas plants turning at only a third of their capacity in the first half of 2013.
Mestrallet said GDF Suez hoped to announce a divestment in traditional generation in Europe in comings weeks, but declined to be more specific.
The firm said in February it planned to sell another 11 billion euros of assets in 2013-14, focusing on mature markets with limited growth potential, non-core assets and minority stakes in non-strategic locations or activity.
The sales should help cut net debt, which fell 4.4 billion euros to 32.2 billion at the end of the first half.
Core profit at GDF Suez's international business was up 0.6 percent to 2.16 billion euros. In 2012, 40 percent of the group's 117 gigawatts of power capacity was located in emerging markets in Asia, the Middle East and Latin America.
The firm focuses nearly half of its growth capital spending on fast-growing countries. At the end of June, it had 7.1 gigawatts of capacity under construction, with about 75 percent of that in fast-growing markets. In Europe, GDF Suez focuses investment on renewable energies like wind and solar, and on energy efficiency services for corporate and public clients.
($1 = 0.7531 euros) (Additional reporting by Benjamin Mallet; Editing by James Regan and Mark Potter)