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UPDATE 2-Currency effects put brake on Inditex's growth

* Gross margin squeezed in fourth quarter

* Bad weather drags on sales in new financial year

* Full-year results in line with expectations

* Raises dividend by 10.3 percent

* Shares reverse losses, trade at top of IBEX (Adds weather effects, analyst comment, details on retail model, updates shares)

LA CORUNA, Spain, March 14 (Reuters) - Spanish retailer Inditex, owner of fashion chain Zara, suffered a squeeze on profitability in its latest quarter because of currency effects and a decision to delay the launch of its spring collection.

But Chief Executive Pablo Isla said the strong euro should not depress margins this year, despite the fact that the dollar is weakening again on fears of a global trade war.

"Looking to the year ahead, we should not see a negative impact on margin at current exchange rates," Isla told a news conference in the company's headquarters in northern Spain.

Inditex, the world's biggest fashion retailer by market value, is more affected by the strengthening euro than European rivals because of its high proportion of production close to headquarters, which allows it to respond faster to new trends and demand.

Analyst Anne Critchlow of Societe Generale said Inditex aimed to offset the currency headwinds by the timing of some of its spending.

"As we don't know the precise volumes and timing of purchases, we will have to take the company's view of the gross margin for the current year," she said.

Inditex's proportion of online sales - increasingly important as it fends off threats from the likes of Amazon - jumped 41 percent to reach 10 percent of net sales across the group in 2017 - still well below its main rivals.

"Inditex sees strong growth opportunities and continues to expand its global, fully integrated store and online sales platform," said the retailer, which analysts say connects its web and physical offerings better than competitors do.

Inditex shares - which fell to a three-year low last month after analysts cut their price targets due to the effect of the strong euro - traded 2.1 percent higher by 1230 GMT on Wednesday, at the top of Spain's blue-chip IBEX index.

MARGIN PRESSURE

Inditex, whose brands include Massimo Dutti and homewares chain Zara Home, said its gross margin dropped to 53.5 percent in the quarter to the end of January from 59.4 percent in the previous quarter and 54.8 percent a year earlier.

"We think this is mainly due to currency mix, a delay in the start of the spring collection to the first quarter and lower full price sales than expected in the second half of the fourth quarter," said Richard Chamberlain of RBC Capital Markets.

Inditex reported net profit of 3.4 billion euros ($4.2 billion) for the year to January 31, up 7 percent and in line with analysts' expectations.

The cash-rich company proposed a 10.3 percent increase in the dividend to 0.75 euros per share.

Sales at constant exchange rates rose 10 percent to 23.5 billion euros in 2017.

On the same basis, sales grew 9 percent in the first five weeks of the new financial year as new spring collections hit shop floors with items like printed maxi dresses, linen separates and pastel blazers at Zara.

Large Inditex stores in prime shopping areas act as a showcase for clothing which can be bought there and then, or ordered later online via the app or website, blurring the distinction between the different sales methods.

However, there is still room to expand online.

The 10 percent of sales online compare with 12 percent for Swedish rival H&M and lag many British retailers such as Next or Marks and Spencer, said Societe Generale's Critchlow.

"Clearly, the online exposure for H&M and Inditex should rise over time." ($1 = 0.8066 euros) (Reporting By Sonya Dowsett; Editing by Paul Day, Keith Weir and Georgina Prodhan)