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UPDATE 3-Fiat downshifts targets as Europe gloom persists

* Q3 trading profit at 951 mln euros, above forecasts

* Fiat sees weak European market through 2014

* Q3 net debt at 6.7 bln euros, worse than expected

* Shares down 3 pct

MILAN, Oct 30 (Reuters) - Fiat downshifted its full-year forecasts to the lower end of its range on Tuesday and said net debt would overshoot a previous target by as much as one billion euros in the face of a persistently weak European car market.

Third-quarter trading profit at the Italian automaker beat forecasts as a jump in sales at its U.S. arm Chrysler offset a growing loss in austerity-hit Europe, where the maker of the Punto and the 500 does not see a recovery until 2014.

``Events of the past 12 months have reinforced our negative view of the development of the European markets,'' Turin-based Fiat said in a statement.

Fiat CEO Sergio Marchionne will discuss strategy and investment on a conference call at 1500 GMT.

Fiat, which posted a trading profit of 951 million euros ($1.23 billion) on Tuesday, said it now expected that number to be 'in excess' of 3.8 billion euros for the whole of 2012, the bottom end of a 3.8-4.5 billion euro target range.

Analysts had forecast trading profit of 910 million euros after 851 million euros a year earlier. The company's closely watched net debt was 6.7 billion, worse than a consensus forecast of 6.5 billion euros. The company is now forcasting to hit 6.5 billion euros in net debt by the end of 2012, higher than the 5.5-6 billion euros initially forecast.

The carmaker, under pressure in Italy to resume a multi-billion investment plan for its five underused Italian plants, did not give an update of future targets and strategy in the earnings release.

``We remain convinced that a lack of details guidance and of statements regarding the overcapacity of Fiat's plants together with a lack of newsflow about the potential acceleration in increase Fiat control of Chrysler would be negatively perceived by the market,'' said a Milan-based analyst.

EUROPE STRUGGLES

The trading loss in Europe, where Fiat sells 25 percent of its cars, was 238 million euros, double the level of a year ago.

Fiat's bearish outlook on Tuesday hammers home the dramatic business conditions facing Europe's embattled carmakers as they struggle to stem losses from high fixed costs in a sinking car market.

Last week U.S. rival Ford said it would shut plants in Belgium and Britain, with the loss of thousands of jobs. Meanwhile, France's PSA Peugeot Citroen accepted state aid and even Germany's Volkswagen, previously more crisis-proof than its mass-market rivals, posted a big quarterly profit drop.

``The issue in the auto sector right now is who can survive a repeat of 2008,'' said Philippe Houchois, referring to the car market contraction that forced governments in Europe and the United States to step in with emergency cash injections.

Europe's sovereign debt crisis, government spending cuts and high unemployment have hit consumer budgets and sent demand plunging, with new car registrations in the region showing their sharpest contraction in 12 months in September.

In Fiat's hometurf Italy, car sales have declined to levels not seen since the 1970s.

Fiat shares rose initially on the back of the forecast-beating profit, but at 1338 GMT, the shares were down 3 percent at 4 euros, dragged down by the outlook. The broader European car index was up 1.42 percent.

``The trading profit is better than expected, but shares have fallen after the company's mini-warning on trading profit at the low end of the 2012 range,'' said Alessandro Frigerio, a fund manager at RMJ.

Fiat's bottom line continues to be bolstered by Chrysler, which posted an 80 percent rise in quarterly net income on Monday on stronger new vehicle sales, as well as by strong results in Brazil.

The company has cut back on spending in order to ride out Europe's market slump, a strategy that is deeply unpopular with unions and politicians in Italy and has even exposed it to sniping from other business leaders.

For example, it won't replace its new compact Punto car until 2015. The strategy is risky, since it exposes Fiat to the danger of not having any new car models in the show rooms in the event of a sooner-than-expected market recovery.

It also risks having too few dealers in the future to sell its cars. Roughly one-third of Italy's 2,250 car dealerships risk closing their doors by the end of this year, trade group Federauto said in May.