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UPDATE 3-Lowe's forecasts further squeeze as results disappoint

(Adds analyst quote, updates shares)

Feb 28 (Reuters) - Lowe's Companies Inc's profit and margins fell well short of Wall Street estimates on Wednesday as the No. 2 U.S. home improvement chain spent heavily to take on competition in an improving housing market.

The company's shares tumbled about 8 percent in premarket trading after Lowe's forecast same-store sales growth would slow this year and operating margins would fall.

"Given the rapidly evolving competitive landscape, we are also accelerating our strategic investments leveraging the benefits of tax reform," Chief Executive Officer Robert Niblock said.

"As we enter 2018, we are working diligently to improve execution with a focus on conversion, gross margin, and inventory management."

Lowe's net income fell 12.5 percent to $554 million, or 67 cents per share, in the fourth quarter. Its adjusted earnings of 74 cents per share were well below analysts' average estimate of 87 cents.

That compared poorly to Lowe's bigger rival Home Depot Inc , which topped estimates last week as it drew in more shoppers who spent more on average, with same-store sales jumping 7.5 percent.

Lowe's same store sales also rose - by 4.1 percent in the fourth quarter - but its gross margins fell to 33.73 percent, missing analysts estimates of 34.27 percent.

BTIG analyst Alam Rifkin pointed to the impact of last year's hurricanes across Florida and Texas, where Lowe's has a large number of stores, as one reason for that squeeze.

The lumber and building materials that homeowners bought in bulk last autumn to rebuild after a violent storm season normally come with much tighter mark-ups for retailers than other manufactured goods.

Lowe's net sales fell nearly 2 percent to $15.49 billion, but topped estimates of $15.33 billion, as did same-store sales.

"That's about where the 'good news' ends," said RBC Capital Markets analyst Scot Ciccarelli said.

Concerns about rising mortgage rates and the impact of the U.S. tax reforms on higher-priced homes have begun to weigh on stocks of homebuilders and construction retailers alike.

Data this week showed January was the first year-on-year drop in sales of new U.S. single-family homes in five months, helping spark losses for housebuilders D.R. Horton Inc, Toll Brothers Inc and Lennar Corp on Tuesday.

Lowe's operating margins rose to 9.60 percent last fiscal, but are expected to decrease about 30 basis points this year.

The company also expects full-year same-store growth to slow to about 3.5 percent, from 4 percent last fiscal year.

Lowe's shares were down 8.3 percent at $87.90. Home Depot's shares were off 0.18 percent at $184.65. (Reporting by Aishwarya Venugopal in Bengaluru; Editing by Savio D'Souza)