UPDATE 2-Telefonica net meets f'casts, Spain improves

* Revenue just below expectations

* Latam growth helps offset weakness elsewhere

* Weak Spanish business improves in Q3

* Shares slip 0.5 percent to 18.88 euros at 0901 GMT

(Releads with details, analysts)

By Elisabeth O'Leary

MADRID, Nov 12 (Reuters) - Strength in emerging Latin America and cost-cutting helped Telefonica (TEF.MC) present flat nine-month profit on Thursday, and the telecoms group said its recession-hit Spanish business was shrinking more slowly.

Spain, which still provides one third of Europe's largest telecom's revenues, registered an 8 percent decline in mobile revenues in the third quarter alone, 1 percentage point lower than in the previous quarter.

Aside from that, with mobile telephony and internet still booming and the economy starting to revive, Latin American units broadly outperformed European counterparts and helped plug some of the gaps, although exchange rate losses ate away much of the gains in euros.

Net profit at Europe's largest telecom rose 0.3 percent to 5.61 billion euros ($8.41 billion), in line with expectations for 5.65 billion euros in a Reuters poll of 10 analysts. Revenues declined by 3.3 percent.

Latin America was the only area of Telefonica's business to grow -- by 1.9 percent -- in terms of revenues in the nine month period.

Some analysts seized on Telefonica's comment that business in weak spot Spain, where unemployment has hit nearly one fifth of the working population, had slightly improved in the third quarter, helped by cost-cutting.

"Business in Spain has shown a strong increase in commercial activity... with significant improvement in all services as well as slight slowdown in the rate of decline in revenues," Telefonica said.

Wolfgang Specht, analyst at Oppenheim Research, called this good news after the bad performance in Spain in recent quarters.

Another analyst cautioned however, that the worst in Spain may not be over and that, at best, the figures were less negative, perhaps supporting the shares.

Like most of the telecom sector the group has weathered the recession by tightening its belt, cutting costs internally and for clients, and scaling back investment.

Overall third quarter costs fell by 6.5 percent and in Spain by 7.1 pct.

Revenues overall in the nine month period fell 3.3 percent to 41.72 billion euros, just below a consensus for 41.93 billion euros in the poll, while operating income before depreciation and amortisation (OIBDA) fell 2.2 percent to 16.65 billion euros versus 16.66 billion euros forecast in the poll.

Telefonica also reiterated its forecasts for 2009 results, as it did at an investor day last month. ($1=.6668 euros) (Reporting by Elisabeth O'Leary; Editing by Jon Loades-Carter and Mike Nesbit)