UPDATE 3-Sharp Q3 disappoints but bullish on LCD outlook

* Q3 oper profit Y21.0 bln vs Y15.9 bln loss yr earlier

* Annual outlook unchanged, in line with consensus

* Sales of high-margin flat TVs in Japan, China lead recovery

* Costs related to start-up of new LCD plant cap profits

* Shares down 0.4 pct ahead of results, lag sector index (Adds analyst comments)

By Kiyoshi Takenaka

TOKYO, Feb 3 (Reuters) - Japan's Sharp Corp reported a smaller-than-expected quarterly profit on Wednesday reflecting start-up costs at its new display panel plant but forecast tight LCD supply for 2010, raising hopes for a further earnings recovery.

Sharp, the world's fourth-largest LCD TV maker and a major supplier of display panels to other TV producers, brought onstream its cutting-edge LCD factory in October.

The $4.8 billion facility, located in the western Japan city of Sakai, is designed to enable Sharp to offer cost-competitive LCD panels, but one-off costs associated with the start-up weighed on its profitability in October-December.

Operating profit at Sharp, which trails Samsung Electronics Co Ltd, Sony Corp and LG Electronics Inc in LCD TVs, was 21 billion yen ($233 million) in the three months.

That was up from a 15.86 billion yen loss a year earlier but fell short of a consensus for a 27.5 billion yen profit in a poll of 5 analysts by Thomson Reuters I/B/E/S.

"My first impression is a little negative," Mizuho Securities analyst Ryosuke Katsura said.

"I'm afraid the results were bearish even after taking into consideration expenses for bringing the new plant up to speed and sluggish demand for small LCD panels."

Sharp managed to turn profitable in the latest quarter as solid sales of high-margin LCD TVs in Japan and China as well as brisk demand for solar cells and cost cuts more than offset a slide in LCD panel profit.

Sharp competes with First Solar Inc, Q-Cells and Sanyo Electric Co Ltd in the solar cell market.

For the year to March, the maker of Aquos LCD TVs kept its forecast for an operating profit of 50 billion yen and predicted favourable market conditions for its LCD business in the first three quarters of the new business year from April 1.

The full-year outlook is a turnaround from a 55.48 billion yen loss last year and roughly on a par with a market consensus for a 51.4 billion yen profit.

"I see tight supply in the quarters starting in April, July and October, with demand in emerging markets growing," Sharp Executive Vice President Toshishige Hamano told a news conference.

"I wouldn't worry about unit shipments, although we naturally will have to live with some price declines."

Hamano's comments follow a quarterly earnings announcement by rival panel maker LG Display Co Ltd last month which gave a robust quarterly outlook as improving demand for personal computers and flat-screen televisions boosts shipments.

Global sales of displays used in LCD TVs will likely surge 40 percent to $49.2 billion this year amid a shift in demand to larger and more advanced panels, research firm iSuppli said last week, boding well for Sharp and other electronics makers.

Prior to the announcement, shares in Sharp closed down 0.4 percent at 1,132 yen, underperforming the Tokyo stock market's electrical machinery index, which rose 0.4 percent.

Sharp shares have climbed 16 percent over the past three months, beating the subindex's 9 percent gain. ($1=90.28 Yen) (Additional reporting by Nathan Layne, Chikafumi Hodo and Yumi Horie; Editing by Michael Watson)