UPDATE 1-Philip Morris CR halts home market share drop -CEO

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By Jan Korselt

PRAGUE, Nov 1 (Reuters) - Czech cigarette maker Philip Morris CR <TABKsp.PR> expects its domestic market share to stabilise in the second half after dropping in the first six months, Chief Executive Officer Anja Fiedler said on Wednesday.

The drop in market share to 62.8 percent from 69 percent in the first half of last year has sparked investor concerns about its sales outlook.

Shares in the company, which is controlled by U.S.-based food and tobacco group Altria Group Inc. <MO.N>, fell 0.81 percent to 11,581 crowns on Wednesday.

"Our market share has been stabilising at around 62.8 percent, and I think that's very positive," Fiedler told Reuters in a brief interview.

"We have some signs that we can say that this positive trend hopefully will continue," she said.

Cheaper foreign brands have risen in popularity and eaten into the company's local sales after cigarettes became more expensive following an excise tax hike by the government.

The stiff competition led Philip Morris CR to partly absorb excise tax hikes rather than raising prices, which took its toll on first-half earnings and sent its shares to four-year lows in August. The stock has recovered by a third since then.

Fiedler said the company found it difficult to predict its sales because of lingering uncertainty over the government's plans for future tax hikes and for regulation of producers' and importers' inventories to prevent hoarding.

"Specific goals can be defined once we know the environment we operate in," she said.

The parliament gave preliminary approval to a further tax hike in September, but a new government has aimed to reduce the proposed increase so that taxes rise only to the minimum level required by the European Union.

It also plans to regulate stockpiling of old, lower-tax cigarette stamps by producers and importers. An April tax hike is not expected to boost retail prices until December because of the hoarding.

Philip Morris CR sells 53 percent of its production on the domestic market, which means that its costs rise much more than do those of its competitors when it is forced to stockpile after a tax hike to avoid losing market share. ((Reporting by Jan Korselt; Writing by Marek Petrus; Editing by Jane Baird; Reuters Messaging: rm://marek.petrus.reuters.com@reuters.net; e-mail: prague.newsroom@reuters.com or marek.petrus@reuters.com; Tel: +420 224 190 477))

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Keywords: TOBACCO CZECH PHILIPMORRIS