UPDATE 2-One-offs boost Lenovo Q2, but thin margins worry

* Q2 net profit $53.08 mln vs street view $24.5 mln

* Included $38 mln one-off gain from sale of investments

* Revenue down 5 percent

* China accounts for almost half of total sales

* Shares more than doubled this year, beating main board (Adds details, quotes)

By Kelvin Soh and Doug Young

TAIPEI/HONG KONG, Nov 5 (Reuters) - Lenovo (0992.HK), the world's No.4 PC maker, warned its outlook remains challenging even as tech spending picks up in a global economic recovery and its quarterly profit was more than double market forecasts.

A thinning operating profit margin in China -- where Lenovo has 49 percent of its sales -- prompted analysts to say that competition could be heating up and Lenovo could face rougher days ahead.

"Margins look very thin in China, and that's something that seems quite worrying," said Ellen Tseng, an analyst at Nomura Securities. "While things are looking good overall, how they protect their margins is going to be the biggest issue."

Still-weak corporate spending also continued to drag, with July-September revenue slipping 5 percent to $4.1 billion as companies held off spending on Lenovo's high-end products.

A one-off $38 million gain, which Lenovo attributed to the disposal of some investments, helped push it back into profit after three quarters of losses.

July-September net profit more than doubled to $53.08 million, and was well ahead of market forecasts for $24.5 million, according to Thomson Reuters I/B/E/S.

"One-off gains or not, the figures are a step in the right direction, and should help convince some nay-sayers," said Edward Yen, a UBS analyst. "They're keeping expenses in check, which is really vital in today's business environment."

CORPORATE UPTICK IN 2010

The company, which remains heavily reliant on corporate spending as a result of buying IBM's (IBM.N) laptop PC arm in 2005, said it expects to see a corporate refresh cycle in the second half of 2010.

"As commercial market demand improves, we will be able to further enhance and scale in expenses in mature markets and enhance our profitability in the region," Chief Financial Officer Wong Wai Ming told reporters on Thursday.

The results follow a string of better-than-expected numbers from tech peers such as Microsoft (MSFT.O) and Google (GOOG.O), reaffirming a return in technology demand and raising hopes that spending is picking up again.

However, Lenovo said it expected a challenging market environment in the second half as commercial demand remains soft.

The company, which is cutting jobs and consolidating its divisions, has been a big beneficiary of China's $600 billion stimulus package partly aimed at encouraging the public sector and rural consumers to buy electronic products.

Lenovo's reliance on its home market could eventually come under pressure as rivals such as Dell (DELL.O), Acer (2353.TW) and Asustek (2357.TW) expand their business and marketing in China.

Lenovo is China market leader in PCs with around a 28 percent share, and ranks ahead of HP (HPQ.N) and Dell, according to research firm IDC.

The results came after the Hong Kong stock exchange closed on Thursday. Lenovo shares ended up 1.4 percent in a broader market .HSI down 0.6 percent.

Lenovo's shares have more than doubled this year, outpacing a 50 percent rise on the Hang Seng Index .HSI. (Editing by Lincoln Feast and Ian Geoghegan)