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UPDATE 3-T.Italia cuts 2008 targets, better H1 than expected

(Adds comments from conference call, closing shares)

MILAN, Aug 8 (Reuters) - Telecom Italia TLIT.MI cut its sales and core profit forecast for 2008 on Friday but reported a less drastic than feared 24 percent drop in first-half profit to 1.14 billion euros ($1.73 billion), keeping its shares buoyant.

Europe's fifth-biggest telecommunications group, which counts Spain's Telefonica TEF.MC among core investors, reined in expectations for 2008 revenues to between 30.4 billion and 30.5 billion euros from the 31 billion targeted in March plans.

It also cut its target for 2008 earnings before interest, taxes, depreciation and amortization (EBITDA) margin to 38 percent from 38.5 percent of sales, after its Brazil mobile and German businesses suffered “unexpected setbacks” in the first half.

But Chief Executive Franco Bernabe reassured investors that targets for 2009-2010 for sales growth of 1-2 percent and EBITDA margin of around 39 percent, laid out in March, were unchanged.

“We confirm whatever we said (in March) and we will stick to this,” Bernabe told analysts on a conference call, adding dividend policy was also unchanged.

His brief answer also implied a reiteration that the company would not seek funds from investors -- something executives have had to deny on an almost weekly basis this summer as such speculation has helped pound its shares to 10-1/2 year lows.

European telecommunications companies which have already reported results -- including Telefonica -- have mostly stuck to forecasts despite an economic slowdown on the continent. Units abroad, particularly in central and South America, have given growth.

Further clouds over Europe came from Telecom Italia’s backyard on Friday, as Italy, the euro zone’s third-biggest economy, said it stalled year-on-year in the second quarter.

Telecom Italia had earlier on Friday failed to deny a report that it would narrow its forecast for sales growth in 2009-2011 to 1.2-1.5 percent from 1-2 percent in its March strategy plan.

RELIEF SPURS SHARES

Telecom shares closed 3.09 percent higher at 1.135 euros after jumping so much when results were announced that they had to be temporarily suspended from trading.

The DJ Stoxx index of European telecoms shares .SXKP gained 1.16 percent.

Telecom’s shares have lost half their value since Bernabe was appointed to the helm by controlling investors in December 2007, underperforming European peers by around 28 percent.

Some 5 billion euros has been wiped from the value of the 24.5 percent stake held by Telefonica and the other controlling shareholders -- Italians Mediobanca MDBI.MI, Intesa Sanpaolo ISP.MI, Generali GASI.MI and the Benetton family.

The investors, who agreed to buy control in April 2007, have said they are not going to write it down on their books as the loss does not seem long-term.

But the Benettons have said they could sell if they were not satisfied with strategy changes from Bernabe, and the Fossati family, the company’s second-biggest shareholders with 4.45 percent, have suggested Telefonica could take over.

Bernabe has said he will review plans -- seen as conservatively focused on cost-cutting and reducing debt -- at the end of this year and told analysts on Friday that more details of performance would be available then.

Telecom Italia said in its statement that net debt rose to 37.17 billion euros as of June 30 from 35.44 billion at the end of March. Its market capitalization is about 20 billion euros. ($1=.6593 Euro) (Editing by Gerald E. McCormick)

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