* Q3 revenue 18.8 bln euros vs 17.7 bln forecast
* Q3 Autos EBIT margin 9.6 pct vs 9.9 pct forecast
* Currency seen inflating revenue, but not profit
* Stock down 0.7 pct, trails sector peers
(Adds new analyst, CFO comments)
FRANKFURT, Nov 6 (Reuters) - BMW, the world's largest premium carmaker, warned it was beginning to feel the pain of a sickly European market, overshadowing strong quarterly results and a forecast for record annual profit.
For much of the year, German luxury brands like BMW, Audi and Mercedes have exported their way out of difficulty, selling expensive cars like the BMW 7 Series sedan to affluent Chinese and Americans while their European mass market peers struggle at home with massive overcapacity.
Chief Executive Norbert Reithofer said conditions were weakening, however, after the German company posted a 14 percent rise in third-quarter underlying profit on Tuesday that beat analysts' forecasts.
``Like the rest of the sector, we are now beginning to feel some headwind,'' he said in a statement. ``We have to acknowledge that we are all facing dramatic challenges and uncertainties in the global economy today.''
Finance chief Friedrich Eichiner said he still aimed to increase full year operating profit at BMW's core car division, implying a 25-percent improvement in the fourth quarter.
``We have to expect that market conditions will continue to deteriorate and the competitive pressures increase further,'' Eichiner said, using a common industry term for discounting.
``You cannot entirely avoid them (high rebates) unless you are willing to surrender your entire market share,'' he added.
Leasing terms on the revamped 3 Series in Germany effectively equate to 26 percent off the list price of BMW's single most important car - significant given the relative stability of BMW's home market and the model's recent launch in February.
UBS autos analyst Philippe Houchois said Eichiner's contention that higher incentives would knock at least 1.2 percentage points off the average revenue per vehicle was not dramatic.
``They've been crying wolf a bit, and we've been getting great numbers anyway,'' he said, explaining that BMW's cost base may actually be far more competitive than investors assume.
Houchois added that BMW's healthy cashflow make it appealing in a downturn. Nor does it suffer from corporate governance concerns like Volkswagen, which issued a 2.5 billion euro convertible bond issue out of the blue.
With factories running flat out to meet surging demand in China and the United States, German premium carmakers were considered largely invulnerable to the crisis buffeting mass-market European car makers. But cracks are beginning to show.
Daimler's Mercedes luxury car business last month warned it would fall nearly 800 million euros short of its earnings target this year and delayed plans to reach a 10 percent operating profit margin by 2013.
By comparison, BMW has been able to rely on its younger and more diversified product range as well as its fast-growing business in China, its single largest market, where vehicle sales volume rose by 39 percent during the third quarter.
BMW and Audi in China continue to outperform Mercedes, which delivered fewer cars to customers across the world than its two larger rivals.
BMW reaffirmed pretax profit would hit a record this year, while its EBIT margin in its core Automobiles division would reach the upper end of its 8-10 target range, compared with the 10.9 percent achieved so far this year.
``We continue to expect that this corridor of 8-10 percent will be stable, also for 2013, I would like to emphasise that,'' Friedrich Eichiner told reporters.
($1 = 0.7823 euros)
(Editing by Erica Billingham and David Cowell)