UPDATE 7-UniCredit backs off 2008 target in uncertain market

(Updates shares, updates MIB contribution to revenues)

By Jo Winterbottom

MILAN, Mar 13 (Reuters) - Europe's No. 3 bank UniCredit backtracked on a key profit target because market volatility cast uncertainty over its investment banking, sending its shares to 2-1/2 year lows in a bloody day for credit-concerned markets.

Global market turmoil has reined in bread-and-butter merger business for banks and triggered shock writedowns at some of the world's biggest. Analysts remain concerned UniCredit could yet follow suit, despite repeated denials by the bank's executives.

UniCredit, worth about $99 billion, had previously indicated earnings per share this year of 0.66 euros but dropped this on Thursday.

It turned in earnings of 0.55 euros per share for 2007 on pro forma net profit little changed at 6.566 billion euros ($10.24 billion), as it integrated Capitalia for the first time.

"We are not confirming the target," Chief Executive Alessandro Profumo told journalists at a presentation on results, adding volatility in the investment banking component made it impossible to confirm the indication.

"The market is already significantly discounting this," he said.

UniCredit shares slid to 4.37 euros at one point, a level not seen since July 2005, but by 1555 GMT were down 5.17 percent to 4.51 euros as the DJ Stoxx European banking sector index lost 3.06 percent on renewed worries about tighter lending criteria and falls in the value of credit collateral.