UPDATE 2-Italy's UniCredit, hit by Turkey, U.S. dispute, steps up cost cuts

* Turkey's economic woes compound Italian bank's troubles at home

* Bank trims 2019 core capital target, sticks to profit goal (Recasts adding details)

MILAN, Nov 8 (Reuters) - Italy's top bank UniCredit missed third-quarter profit forecasts after writing down its stake in a Turkish bank by nearly $1 billion and setting aside funds to cover an expected settlement of an Iran sanctions case with the United States.

The bank stuck to its 2019 profit goal saying it would step up cost cuts to offset lower revenues. It trimmed instead its core capital target after a hit in the quarter from a falling Turkish lira and higher risk premiums on Italian bonds.

Turkey's economic woes and a slump in its currency have hit the country's banking sector, compounding the troubles UniCredit faces at home, where the spending plans of Rome's new populist government have sent the state's debt costs soaring.

The bank said on Thursday it had booked an 846 million euro ($967 million) impairment on its 41 percent indirect stake in Yapi Kredi, Turkey's sixth-largest bank by assets.

UniCredit also set aside money, without disclosing how much, ahead of settling a dispute with the U.S. government over alleged sanctions violations in Iran. Charges and provisions totalled 741 million euros in the quarter.

Any future impact from the accord, expected in the first quarter of 2019, would not be material, it said.

UniCredit was subpoenaed by the New York county authorities in 2011 over a series of past operations involving Iranian companies. The U.S. Department of Justice opened an investigation in 2012. The bank is carrying out its own internal investigation to assess its compliance with the sanctions.

Net profit came in at 29 million euros in July-September compared with a 907 million euro average estimate in an analyst consensus provided by the company.

Net interest income and fees were in line with expectations.

Turkish banking stocks have taken a beating this year because of the lira's depreciation and worries about its impact on companies and bank loans. Yapi Kredi's shares have lost 54 percent in euro terms so far this year.

PROFIT GOAL CONFIRMED

UniCredit confirmed its 2019 profit goal of 4.7 billion euros but increased planned cost cuts by 200 million euros to offset lower revenues.

"We maintain the operating profitability (target)," CEO Jean Pierre Mustier said on a call with journalists. "We're being super conservative on the Turkish side and the trading side and we compensate with lower costs."

Analysts say UniCredit's strategy centred on cost cuts is a source of strength at a time when growing political uncertainty, a slowing economy and market turmoil hitting Italian assets raise doubts over lenders' ability to grow revenues.

UniCredit said it saw revenues at 19.8 billion euros next year, barely up from 2018 and below a previous target of 20.6 billion euros.

The bank's core capital ratio fell to 12.11 percent on a fully-loaded basis in September, from 12.51 at the end of June.

Mustier said UniCredit would reduce the capital impact from Italian bond yields in future by booking any new purchases among assets which are held to maturity.

UniCredit said it now saw its core capital next year at 12-12.5 percent compared with a previous estimate of more than 12.5 percent.

Shares in UniCredit had fallen 3 percent by 1002 GMT against a 1 percent drop in Italy's banking sector.

($1 = 0.8753 euros)

(Reporting by Valentina Za; Additional reporting by Ebru Tuncay and Tuvan Gumrukcu; Editing by Adrian Croft)