UPDATE 2-Walgreen quarterly profit rises 2 percent

(Adds company, analyst comment, byline; updates share movement)

By Brad Dorfman

CHICAGO, June 23 (Reuters) - Walgreen Co (WAG.N: Quote, Profile, Research, Stock Buzz) on Monday posted a 2 percent increase in quarterly profit as a weak U.S. economy and slowing growth in demand for prescription drugs muted sales.

But the company also said it was on pace to open more stores than planned this fiscal year and that new locations were continuing to meet or exceed its target for return on investment.

Walgreen, one of the largest U.S. drugstore chain operators, said earnings rose to $572 million, or 58 cents a share, in the third quarter that ended May 31 from $561 million, or 56 cents a share, a year earlier.

Analysts on average had forecast profit of 59 cents a share, according to Reuters Estimates.

Earnings suffered because of a $16.1 million inventory-related charge, while in the year-earlier period, the company had an inventory gain of $3.5 million and a $13.5 million tax credit.

Sales rose 9.6 percent to $15.01 billion.

Sales at stores open at least a year rose 3.4 percent, including increases of 2.7 percent for prescription drugs and 4.6 percent for nonprescription items.