* 2016 current operating profit 1.121 bln euros, up 19 pct
* Says Bouygues Tel good performance confirms strategic choices
* Bouygues says no talks going on with Orange
* Shares surge higher (Adds further detail and comments)
By Dominique Vidalon
PARIS, Feb 23 (Reuters) - French conglomerate Bouygues said on Thursday that improved profitability at its telecoms unit helped deliver a forecast-beating rise in group operating profits, and predicted a further increase in earnings for 2017.
The robust performance at the telecoms arm - France's third-biggest mobile operator, which Bouygues failed to merge with market leader Orange last year - strengthened the view that Bouygues Telecom can prosper on its own at a time of renewed rumours of sector consolidation.
Chief Executive Martin Bouygues said there were no ongoing talks with Orange over future sector consolidation and that the good health of Bouygues Telecom was the answer to those rumours.
Its construction business, which makes the bulk of sales, also contributed to the higher 2016 profits, with fourth quarter figures in France confirming a recovery and possible pick-up in the domestic construction market for 2017.
"We are emerging from a difficult period. 2016 demonstrates our group is well positioned to seize new opportunities and this is true for all our markets," Bouygues said.
The family-controlled group, which also builds roads and owns TF1, France's biggest private TV broadcaster, said group current operating profit reached 1.12 billion euros ($1.2 billion) last year, against 941 million in 2015.
Analysts polled by Inquiry Financial for Reuters had predicted operating profit of 1.05 billion euros.
The solid result drove Bouygues' shares up by 5 percent during mid-session trading, with Bouygues the best-performing stock on Paris' benchmark CAC-40 index.
France's telecoms sector, hit by a price war following the entrance of low-cost player Iliad in 2012, has been the subject of takeover speculation in recent years.
But Bouygues Telecom has said it can prosper on its own and has responded with a turnaround plan including job cuts and a focus on the rollout of its 4G network and fixed-line broadband.
Earlier this month, Bouygues denied new speculation about merger talks between France's four main telecom operators.
Separately, Orange CEO Stephane Richard said on Thursday there were no talks going on at the moment for a deal to cut number of french telecoms operators.
Bouygues Telecom's earnings before interest, tax, depreciation and amortisation (EBITDA) rose to 916 million euros in 2016 against 752 million in 2015.
The company stuck to its 2017 EBITDA target for Bouygues Telecom. It also set a new free cash flow target of 300 million euros in three years time, along with plans to invest 1.2 billion euros for the Bouygues Telecom business in 2017.
$1 = 0.9473 euros Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta and Catherine Evans