UPDATE 3-Covidien profit rises; shares turn higher

* Profit before items of 73 cts/shr exceeds estimates

* Sales rise 12 pct to $2.6 bln on strong devices, drugs

* Lowers fiscal 2009 sales forecast to flat to up 3 pct

* Shares rebound, rise nearly 3 pct, after early dip (Adds executive and analyst comments, updates share activity)

By Susan Kelly

CHICAGO, Nov 17 (Reuters) - Covidien Ltd (COV.N) posted higher-than-expected quarterly earnings on Monday on strong sales of its medical devices, supplies and pharmaceuticals, but lowered its 2009 sales forecast due to the rising U.S. dollar.

Although favorable foreign exchange rates boosted sales growth in the fourth quarter, the recent strengthening of the dollar will have a significant negative impact on sales going forward, the company said.

The shares of Covidien, a leading maker of health care products, have lost about one-third of their value in recent weeks as investors anticipated the dollar's reversal would dampen sales going forward.

On Monday morning, the stock slipped another 3 percent in early trading on the New York Stock Exchange, approaching last week's year-low of $35.35, before rebounding to trade up nearly 3 percent to $39.19 in the afternoon.

"I think investors are saying, hopefully now we have the worst-case scenario on the table and likely dialed into the stock, and the company has the potential to do better," said Leerink Swann analyst Rick Wise, who rates the shares "outperform."

The company's products range from laparoscopic surgical devices and hernia repairing mesh to drugs including generic OxyContin and compounds used in medical imaging.

The recent slowdown in capital spending by hospitals has had no material impact on sales, company officials said, noting less than 5 percent of Covidien's products are considered capital purchases. Exposure to elective surgical procedures, which some patients are delaying due to deteriorating economic conditions, is relatively limited as well.

Covidien posted net profit of $409 million for the fiscal fourth quarter ended Sept. 26, up from $34 million a year earlier.

Profit before special items was 73 cents per share, compared with 62 cents the year before. Sales rose 12 percent to $2.6 billion.

Analysts on average were expecting earnings of 68 cents a share before special items on revenue of $2.54 billion, according to Reuters Estimates.

Medical device sales rose 10 percent to $1.7 billion in the fourth quarter, with medical products sales also up 10 percent to $245 million.