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UPDATE 2-Vespa maker Piaggio profits drop, stock slides

(Adds CEO, analyst quotes, share price, background)

MILAN, May 7 (Reuters) - Piaggio PIA.MI, the Italian maker of Vespa scooters, posted a 21 percent drop in its quarterly core profit on lower sales, citing weak demand in Europe and the euro's strength against the dollar and other currencies.

The result disappointed investors, sending its shares down as much as almost 5 percent before they recovered to stand at 1.55 euros, down 2.8 percent.

“Nearly all the numbers were below expectations,” said one analyst on condition of anonymity.

Shares in IMMSI IMSI.MI, a holding company that owns 55 percent of Piaggio, were down 1.1 percent at 0.965 euros.

Piaggio said it would focus on controlling its cash flow and expanding in Asia, a market whose growth has helped compensate for a stagnant Europe, although signs of problems are looming in some Asian markets too.

It also proposed another share repurchase programme of up to 10 percent of its stock on top of one in place under its 2007-2009 business plan. Ahead of the annual meeting where shareholders were to vote on the proposed programme, Piaggio Chief Executive Roberto Colaninno described as “stupid” a Monday report by daily La Repubblica that IMMSI could be delisted.

Among the new models coming to the market this year, Colaninno said a hybrid version of its three-wheel Mp3 scooter would be out in October.

In the first quarter, Piaggio’s core profit or earnings before interest, tax, depreciation and amortisation (EBITDA) totalled 35.1 million euros.

Sales of two, three and four-wheeled vehicles fell 6 percent to 150,600, leading to a 7.7 percent drop in consolidated net sales to 363.9 million euros.

Colaninno had told reporters of the sales downturn trend on Tuesday, adding that Piaggio refused to cut prices like its competitors.

INDIA OUTLOOK UNCERTAIN

Piaggio is investing heavily in India and Vietnam and is extending a partnership with Japan's Daihatsu Motor 7262.T to supply components, engines and powertrains for its light transport vehicles. It has also launched a mini truck to take on India-based sector leader Tata Motors TAMO.BO in this fast-growing segment.

However it faces darkening outlook for two-wheeled sales in India, where the biggest motorcycle makers -- Hero Honda Motors 7267.T and Bajaj Auto BJAT.BO -- are both talking about a difficult home market, citing high interest rates and rising inflation.

In Vietnam, where Piaggio is to start building a factory, members of a growing urban middle class are buying cars rather than motorcycles. (Reporting by Gilles Castonguay, editing by Will Waterman/Andrew Callus)

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