* Puma shares fall after Kering says will spin off brand
* 70 pct of Puma will be distributed to Kering shareholders
* Deal seen as a positive for Kering, focusing on luxury
* But investors may have preferred outright Puma sale (Adds details from Puma call, valuations)
PARIS/BERLIN, Jan 12 (Reuters) - Puma shares tumbled on Friday after French parent Kering said it would spin-off the German sportswear group to its shareholders and focus solely on its luxury fashion and jewelry labels.
Kering, whose brands range from Gucci to Yves Saint Laurent, plans to distribute 70 percent of Puma to its own investors, retaining only a 16 percent stake in a business which is finally making strides after 10 years under its ownership.
Investors initially welcomed Kering's move, sending its shares to record highs, although they subsequently retreated to trade down by 1.8 percent.
Puma shares fared worse, slumping at one stage by 15 percent to nine-month lows. Puma was down 5.8 percent in mid-morning trading, and analysts at Bank of America Merrill Lynch downgraded their rating to "underperform" from "buy."
Kering's move disappointed some investors hoping Puma - with a 5 billion euro ($6.05 billion) market value - might be sold at a premium and acquire another strong backer.
Kering -- controlled by France's Pinault family, which would end up with 29 percent of Puma after the spin-off -- had long been expected to shed the German label this year now that it is in recovery mode.
A distant third in the global sportswear market behind Nike and local rival Adidas, Puma has focused on sports such as soccer, running and motorsport, and launched a new drive to tap into booming sales of women's sportswear by appointing singer Rihanna as creative director in 2014.
An upturn in the luxury goods industry, underpinned by a revival of Chinese demand, has boosted Kering's fashion brands, and analysts said many of these, including Balenciaga, had strong potential.
Revenue growth at Gucci outperformed all peers in recent quarters, thanks to new designs that proved a hit with young buyers.
Kering finance chief Jean-Marc Duplaix said on Thursday that the group had preferred a quick spin-off to a potentially drawn-out and riskier sale process, through a deal that also rewards its own shareholders.
"There were a load of interested parties," Puma CEO Bjoern Gulden told reporters on a call on Friday.
"But for us this is the best option."
He said Puma could make faster decisions as an independent company than it would have been able to as a subsidiary of another firm.
However, the initial market reaction was negative.
"The market is disappointed as it wanted an outright Puma sale," a trader said.
Other analysts expected the spin-off to boost Kering shares in the longer run, and some said there were positives for Puma too.
"We welcome this development, which if approved by shareholders, will increase Puma's free-float making it investable again for the first time in around 10 years. At the same time, Kering will be now able to focus purely on its luxury goods business, where we continue to see value," analysts at brokerage Berenberg wrote in a note.
Puma said on Friday it had no plans to take on other Kering brands such as skatewear label Volcom, which will now be on the block.
Puma increased its profit guidance three times last year on the popularity of the collections designed by Rihanna, and shoes worn by Jamaican sprinter Usain Bolt. ($1 = 0.8260 euros) (Reporting by Sudip Kar-Gupta and Sarah White in Paris, Emma Thomasson in Berlin and Helen Reid in London; Additional reporting by Thyagaraju Adinarayan; Writing by Sarah White; Editing by Keith Weir)