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UPDATE 2-Thomas Cook shares hit by crunch in UK margins as Spain competition ramps up

ramps up@ (Adds shares, details, quote)

LONDON, Nov 22 (Reuters) - Travel firm Thomas Cook reported a fall in full-year profit margins in its British business on Wednesday due to intense competition in Spain, sending its shares tumbling.

Shares fell 13.7 percent in early deals, hitting its lowest level since July, after Thomas Cook said that margins in Britain were lower after four consecutive years of profit growth.

Tour operators and airlines have ramped up capacity in Spain and other Western Mediterranean destinations, in response to security concerns in other markets such as Tunisia and Turkey.

That has prompted a price war among tour operators to Spain, while allowing hotels to ramp up prices that Thomas Cook must pay, squeezing margins from both sides.

Analysts at Panmure Gordon said that while the results were mixed overall, the UK business would be the focus for investors today and would detract from the bright spots in its airline business and Europe.

"Momentum in Condor and Continental Europe is encouraging, but UK profits and margins are down and commentary is more cautious than we would like to see given the challenging macro backdrop," analysts at Panmure Gordon said in a note.

Thomas Cook said it was "well positioned" to achieve current market expectations for 2018, given strong early bookings for the summer.

The company said that while bookings for next summer were at an early stage, the increase in demand for trips to Egypt and Turkey in 2018 would help alleviate some of the margin pressure the company has faced on competitive destinations in Spain.

The tour operator said on Wednesday underlying earnings before interest and tax (EBIT) were 330 million pounds ($437.6 million) in 2016-17, a little ahead of an analyst consensus of 327 million pounds.

($1 = 0.7541 pounds) (Reporting by Alistair Smout, editing by Guy Faulconbridge)