UPDATE 1-Michelin shares slump after cuts 2008 forecast

(Adds analyst comment, Continental, detials and background)

PARIS, April 29 (Reuters) - Michelin MICP.PA lost around a tenth of its stock market value on Tuesday after the French tyre group cut its forecast for 2008 operating income.

Michelin shares at one stage fell as much as 10 percent to an intraday low of 60.10 euros, wiping a billion euros off its stock market value to leave it with a market capitalisation of around 8.7 billion euros.

The stock, at its lowest in over a month, was by far the biggest loser on France's benchmark CAC-40 index .FCHI. The shares were down 9.4 percent at 60.50 euros in mid-morning trade.

Michelin is the world's second biggest tyre maker by market value behind Germany's Continental AG CONG.DE. Continental's shares were off 1.2 percent after it reported a 29 percent rise in underlying operating profit following its purchase of car-parts firm VDO and reaffirmed its full-year targets.

Late on Monday, Michelin said it expected its 2008 operating income before non-recurring items to be near that of 2007 -- down from previous guidance given in February when the company said it expected its operating income to rise.

Michelin added it expected a negative impact from the raw material cost rise in 2008 of 600 million euros at constant exchange rates, which the company said was equivalent to 200 million euros at current exchange rates due to the decline of the dollar.

The company was hit by a wave of broker downgrades. Citigroup cut Michelin to “hold” from “buy” while both Deutsche Bank and Lehman Brothers cut their price targets on Michelin shares.

“Michelin is struggling to increase replacement prices fast enough to counter higher raw material headwinds,” Citigroup said in a research note.

Michelin's bearish outlook follows a similar one from Japanese tyre maker Bridgestone Corp 5108.T in February, when Bridgestone forecast a sharp drop in its 2008 profits due to soaring raw material prices.

Many companies have suffered from the weakness of the U.S. dollar compared to other major currencies, although this worked in favour of U.S. tyre group Goodyear GT.N which this month posted a stronger-than-expected first-quarter profit.

Based on latest prices, Michelin shares have fallen around 23 percent since the start of 2008. Continental AG shares have fallen around 15 percent over the same period. (Editing by Quentin Bryar)