UPDATE 1-NZ's Telecom to keep dividend; repels board challenge

(Updates with results of voting, additional chairman comments)

WELLINGTON, Oct 2 (Reuters) - Telecom Corp (TEL.NZ), New Zealand's largest-listed company, on Thursday pledged to keep its dividend payouts despite the turmoil in world financial markets, and fought off a challenge to its board at its annual meeting.

The company had secured the lines of credit needed to pay for its investment programme and would continue quarterly dividend payouts of 6 cents a share for the next two years, chairman Wayne Boyd told the annual meeting. "Telecom remains well financed and in a strong position," Boyd told shareholders.

Telecom, a former state-owned monopoly that offers fixed line, mobile phone and Internet services, has been forced by the government to split into three operating units and open its network to competitors, to promote a more open market.

A shareholder vote at the meeting rejected two candidates put forward as independent directors by hedge fund Elliott International, a 3 percent shareholder in Telecom.

Elliott nominated Mark Cross and Mark Tume as directors, citing Telecom's poor performance and saying the two would re-energise the board, but both fell well short of the required 51 percent support of shareholders.

The company had not supported the two candidates, with Boyd telling shareholders the board was functioning well and did not need to be expanded.

Telecom's shares were up 2.1 percent at NZ$2.88 at 0121 GMT in a broader market up 1.25 percent.

The stock hit a 16-year low of NZ$2.60 on Sept. 30, and has lost 34 percent so far this year, compared to a 20 percent drop in the benchmark top 50 .NZ50 index.

Boyd said many shareholders had expressed frustration with the company's share price, which has been knocked lower on worries about the impact of increased regulation and competition.

"We are confident that we have the right board, management team and strategies in place to turn Telecom around and deliver you shareholder value," Boyd said.

The company had not been impacted by the deteriorating New Zealand economy, which slipped into recession in the first half of 2008.

Boyd said no change had been made to the guidance given at the annual result on Aug. 8 for full-year profit to fall up to 30 percent to NZ$500-NZ$540 million ($335-$362 million) in the year to June 2009. ($1=NZ$1.49) (Reporting by Adrian Bathgate; Editing by James Thornhill)