UPDATE 3-Google profit falls short of Wall Street view

(Adds details, quote, byline)

By Eric Auchard

SAN FRANCISCO, Jan 31 (Reuters) - Google Inc (GOOG.O) on Thursday reported a disappointing quarterly profit and aggressive spending plans to support a widening range of Web services, unnerving investors who sent its shares down 8 percent.

The world's top Internet company said it expected to continue to make "significant capital expenditures" after spending $678 million in the fourth quarter on data centers, computers and networks -- well above analysts' forecasts.

But Google executives said they were seeing no signs of deterioration of the U.S. economy in their own business and expect advertisers will maintain spending with Google even if they start to slash budgets.

"We have not seen any impact yet from the rumors of future recessions," Google Chief Executive Eric Schmidt told investors on a conference call, confronting fears that have clobbered Google shares and global stock markets in the past month.

Fourth-quarter revenue was slightly shy of Wall Street targets, however, and the rising level of payments to affiliated sites that show Google ads, called traffic acquisition costs, also surprised some.

"The traffic acquisition costs came in much higher than expected and suggests that some of the big deals with their partners may have been renegotiated with higher terms for the partners," said Jordan Rohan, an analyst at RBC Capital.

The results were disappointing given the Web search leader's track record of beating expectations, he added.

Fourth-quarter net income rose to $1.21 billion, or $3.79 per diluted share, from $1.03 billion, or $3.29 per diluted share, in the year-earlier quarter.

Excluding special items, earnings per share amounted to $4.43, falling short of analysts' average forecast of $4.47, according to Reuters Estimates.

Revenue rose 51 percent to $4.827 billion. Analysts, on average, had predicted revenue of $4.83 billion, with estimates ranging from $4.67 billion to $5.10 billion.

"There was a slight softness in revenue which perhaps portends softness going forward due to the ... U.S. economy," said Clayton Moran of Stanford Group.

UK GROWTH SLOWS

Advertising sales in Britain, Google's second-largest market after the United States, grew just 5 percent, or less than half the rate of the final quarter of 2006, amid weak holiday spending by financial services and travel advertisers.

Capital spending grew 20 percent in the fourth quarter over the third quarter of 2007 and was up 85 percent from the final quarter of 2006. Citigroup had warned that spending above $600 million during the quarter would be a negative sign.