UPDATE 3-Discover profit falls short as costs climb

* Fourth-quarter EPS $1.07 vs est $1.13

* Net revenue $1.99 bln vs est $1.97 bln

* Expenses jump 20 pct

* Shares fall nearly 6 pct

By Tanya Agrawal

Dec 20 (Reuters) - Credit card company Discover Financial Services reported a quarterly profit that fell short of analysts' expectations as it spent more on building its new payment partnerships and other businesses, sending its shares down as much as 6 percent.

The company said costs rose 20 percent to $800 million in the fourth quarter as it increased hiring, paid more in compensation and raised its marketing spend.

Discover has been expanding its payment services division as it seeks new areas for growth. It signed a deal in August with PayPal, the online payment service of eBay Inc, under which PayPal users can buy from merchants using Discover's payment network.

It has also tied up with Google Inc to allow users link their Discover cards directly to Google Wallet and has started making home loans after buying home loan center assets from online loan provider Tree.com in May.

The company said pretax income in its payment services unit fell 21 percent to $33 million but transaction volumes rose 13 percent to $49 billion as it continues to invest in the segment.

"The payments business leveraged our network and acceptance footprint to achieve record volumes. We entered into several key partnerships, which we expect to be drivers of huge profitability," Chief Financial Officer Mark Graf said on a post-earnings conference call.

Although one analyst said the company had spent more money on its expansion plans than was expected, others said the expenses were justified.

"The increase in expenses is because the company is strengthening its fundamentals. It is a consequence of growth and is resulting in an improvement in the business lines," said Sanjay Sakhrani, analyst with Keefe, Bruyette & Woods.

Discover's delinquency rates continued to decline as fewer people defaulted on their credit card payments, and were at 1.86 percent compared with 2.39 percent a year earlier.

CARD SALES ROBUST

Fourth-quarter profit rose 7 percent to $551 million, or $1.07 per share, from $513 million, or 95 cents per share, a year earlier.

Analysts on average had expected earnings of $1.13 per share, excluding items, according to Thomson Reuters I/B/E/S.

Provision for loan losses rose 6 percent to $338 million as its loan portfolio increased 6 percent to $61 billion.

Credit card loans rose 6 percent to $49.6 billion in the quarter ended Nov. 30 on a 6 percent rise in card sales volumes, driven by holiday season shopping.

U.S. consumer confidence rose to a more than five-year high in early November on an increasingly upbeat view of the economy and jobs market.

Discover, like American Express Inc, lends directly to consumers but its business is a quarter of its rival's size. The two companies compete with Visa Inc and MasterCard Inc to process transactions for banks.

Shares of the Riverwoods, Illinois-based company were down 5 percent at $37.97 in afternoon trading on the New York Stock Exchange on Thursday. The shares have risen about 68 percent since the beginning of the year to Wednesday.

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Hong Kong shares slip from Aug 2011 high, profit taking ends China rally

* HSI -0.3 pct, H-shares -0.9 pct, CSI300 -0.7 pct

* Chinese banking shares weak after recent outperformance

* Galaxy Entertainment at record high

By Clement Tan

HONG KONG, Dec 20 (Reuters) - Hong Kong shares slipped from near 17-month highs in lackluster Thursday trade as investors took profits on recent outperformers after doubts emerged over progress on averting a fiscal crisis in the United States.

The Hang Seng Index went into the midday trading break down 0.3 percent at 22,549.2, retreating from its highest close since Aug. 1, 2011. The China Enterprises Index of the top Chinese listings in Hong Kong dropped 0.9 percent.

In the mainland, the CSI300 of the top Shanghai and Shenzhen listings shed 0.7 percent, on course for a first daily loss in five days. The Shanghai Composite Index slipped 0.5 percent.

"Trading at this time of the year can be quite tricky," said Jackson Wong, Tanrich Securities' vice-president for equity sales. "Investors are rotating out of outperformers and into some laggards on some Chinese policy catalysts."

On Thursday, Chinese banking plays were key weaknesses in both China and Hong Kong markets, extending losses after the mainland's banking regulator ordered banks to tighten checks on the sale of third-party financial products.

Shares of Bank of China (BOC) in Hong Kong, which touched 52-week intra-day highs twice earlier this week, slipped 0.6 percent. BOC shares in Shanghai shed 0.7 percent.

Growth-sensitive counters were also broadly weaker. Anhui Conch Cement slid 3.1 percent in Hong Kong, set for a third-straight daily loss after hitting on Monday its highest intra-day levels since November 2011. In Shanghai, Anhui's shares shed 2.2 percent.

Sentiment in onshore Chinese markets was also hurt by news that the National Development and Reform Commission (NDRC) is toughening up its rules on bond issuance, including banning over-indebted firms from selling new bonds.

This reignited fears of oversupply in the stock market, dousing hopes that the more than 800 companies that have reportedly applied for stock listings could look to the bond market as an alternate method of raising funds.

CHINA WIND POWER EXTEND GAINS

Bucking market weakness were some Chinese alternative energy counters, which extended gains after mainland news outlets reported that Beijing approved a second group of wind power projects.

The state-run China Securities Journal newspaper reported on Thursday that the State Council has issued new measures to support the solar industry, including subsidies and tax breaks to also benefit the wind power industry.

China Longyuan Power Group climbed 1 percent in Hong Kong.

Galaxy Entertainment Group jumped 4.2 percent to a record high, set for a fourth-straight daily gain after Deutsche Bank analysts upgraded on Monday its target price by 5.4 percent.

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UPDATE 1-Lundbeck shares tumble after profit warning

* Cuts profit, revenue guidance for 2013/14

* Europe sales slow, pressure on pricing mounts

* Faces increased generic competition

* Shares drop 16.8 percent (Adds detail, background, quotes)

COPENHAGEN, Dec 19 (Reuters) - Shares in Danish pharmaceuticals group Lundbeck tumbled 16 percent on Wednesday after it cut its financial outlook for next year and 2014 because of slowing European sales, pressure on pricing and generic competition.

The company is working to find new drugs to replace lost sales from antidepressant Cipralex, sold as Lexapro in the United States and Japan, which is coming off patent.

It said in a statement that it would increase investment in its late-stage pipeline and in product launches, but offered no further details.

The cost of this, Chief Executive Ulf Wiinberg said, necessitated the downward revision of the company's guidance for 2013 and 2014.

Lundbeck now expects 2014 revenue of about 14 billion Danish crowns ($2.5 billion) and operating profit between 0.5 billion crowns and 1 billion crowns.

Two years ago Lundbeck provided its long-term financial floor guidance, in which revenue was expected to exceed 14 billion crowns a year and earnings before interest and tax (EBIT) was expected to exceed 2 billion crowns annually in the period 2012/14.

The company's shares dropped 16.8 percent to 80.40 crowns per share at 0821 GMT, underperforming a 0.2 percent rise in the Copenhagen stock exchange's benchmark index.

Next years' revenue is forecast in the range of 14.1 billion crowns and 14.7 billion crowns, but there was no change to the company's 2012 guidance.

"In the short term, earnings are under pressure," Sydbank analyst Soren Hansen said.

Lundbeck added that it expects a dividend payout ratio of about 35 percent of net profit in the 2012/14 period. ($1 = 5.6458 Danish crowns) (Reporting by Mette Fraende; Editing by Dan Lalor and David Goodman)

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