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UPDATE 2-Target's holiday-quarter profit forecast disappoints, shares dip

(Adds analyst comment, details; updates shares)

Nov 15 (Reuters) - Target Corp issued a disappointing profit forecast for the key holiday quarter as it continues to depend on price cuts to drive traffic to its stores and online, sending its shares down 4 percent in premarket trading.

The Minneapolis-based retailer forecast adjusted earnings of $1.05 to $1.25 per share for the quarter ending January 2018, considerably below the average analyst estimate of $1.24.

Target said it expected same-store sales in the year-end holiday quarter to remain flat or increase by up to 2 percent.

The company has slashed prices on thousands of items this year to lure back consumers that have turned increasingly to rivals like Wal-Mart Stores Inc and online retailers such as Amazon.com Inc.

In October, Target said most of its holiday gift assortment had been priced at under $15, and that it would invest in free shipping beginning in November, the start of the most important shopping season of the year.

Target reported a slightly better-than-expected third-quarter gross margin rate of 29.7 percent, slipping from 29.8 percent as cost cuts helped mitigate damage from promotional pricing.

Same-store sales in the third quarter also topped estimates, rising 0.9 percent as the price cuts drove a 24 percent jump in comparable online sales. Analysts had expected a 0.4 percent increase, according to Thomson Reuters I/B/E/S.

"24 percent online growth continues to place Target in the upper echelon of brick-and-mortar retailers from a percentage growth perspective," Moody's lead retail analyst Charlie O'Shea said.

"All-in-all, we believe Target is executing its strategic plan effectively."

In a turnaround bid announced in February, Chief Executive Brian Cornell vowed this year to double the number of small-format stores, invest heavily in e-commerce, aggressively promote its products and keep grocery prices low to compete with Wal-Mart, Amazon and supermarket chain Kroger Co.

Net income fell to $480 million, or 88 cents per share, in the third quarter ended Oct. 28, from $608 million, or $1.06 per share, a year earlier, on higher selling and general expenses.

Excluding items, the company earned a profit of 91 cents per share, beating the average analyst estimate of 86 cents. Sales rose 1.4 percent to $16.67 billion, higher than the average analyst estimate of $16.61 billion. (Reporting by Sruthi Ramakrishnan in Bengaluru and Richa Naidu in Chicago; Editing by Saumyadeb Chakrabarty and Bernadette Baum)