UPDATE 1-H&M Q2 profits beats expectations, May sales lag

* Q2 pretax 5.78 bln crowns, above forecasts

* May sales lag forecast

* Says currency hedging effects on gross margin to decrease

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STOCKHOLM, June 25 (Reuters) - Swedish fashion chain Hennes & Mauritz (HMb.ST) posted second-quarter profits above market expectations on Wednesday, but sales in May disappointed.

The world's third-biggest clothing retailer by sales made a pretax profit of 5.78 billion crowns ($1.05 billion) in the quarter ended May 31 versus a mean forecast of 5.67 billion in a Reuters poll and 5.43 billion in the same period the prior year.

The firm's gross margin -- a key measure of cost control -- came in at 61.0 percent, beating analysts' forecast of 60.2.

H&M said currency hedges had continued to put downwards pressure on the margin, but that those effects would continue to decrease during the third quarter.

Sales in May, the final month of its second quarter, were unchanged from the same month last year versus an expected 1.4 percent rise. Turnover in stores open a year or more fell 9 percent compared with a forecast fall of 8.5 percent.

H&M only gives whole numbers for the percentage change in sales and does not provide a currency figure.

Earlier in June H&M's Spain-based rival Inditex (ITX.MC) reported a 15 percent fall in first-quarter net profits. ($1=5.525 Swedish crowns) (Reporting by Veronica Ek; Editing by Mike Nesbit)