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ArcelorMittal sees 2014 profit rise as Europe revives

* Sees 2014 core profit $8 bln from $6.9 bln in 2013

* Sees global demand up 3.5-4.0 pct from about 3.5 pct in 2013

* European market to grow for first time in three years

* Q4 core profit $1.91 bln vs Reuters poll of $1.80 bln

* Shares up 4 pct, strongest among European blue-chips

By Philip Blenkinsop

BRUSSELS, Feb 7 (Reuters) - ArcelorMittal, the world's largest steelmaker, forecast higher profits this year, driven by higher steel sales and margins, and an increase in iron ore production as Europe ended two years of decline.

The company, which makes 6-7 percent of the world's steel and is a broad gauge for the health of global manufacturing, said global steel consumption should increase by between 3.5 and 4 percent in 2014 from about 3.5 percent last year.

The steelmaker forecast a slowdown in consumption growth in China, Brazil and the former Soviet states, but saw U.S. market expansion of 4 percent and a modest improvement of around 2 percent in the European Union after declines in 2012 and 2013.

Chief Executive Lakshmi Mittal said the Luxembourg-based company was cautiously optimistic about 2014, a view reflected by other peers and steel users.

High-strength steel maker SSAB said sector prospects were slightly better and that Europe had bottomed out , while the Nordic region's biggest builder, Skanska, said the outlook was improving.

The construction sector, which consumes about half the world's steel, was among the hardest hit by the global financial crisis, but is recovering at least in the United States, where cheap shale gas is driving growth.

Chief Financial Officer Aditya Mittal said volumes so far this year had grown across the business, except North America, although he said the latter appeared to be purely temporary from an exceptionally cold winter.

Mittal said purchasing managing indices in Europe were on average at two year highs and that steel demand in the continent was rising beyond just a restocking effect.

"We are seeing real demand improve. We think it will have more momentum in the second half of 2014 and we see industrial activity rising and construction stabilising," he said, adding both had declined in 2013.

ArcelorMittal shares were trading up 4.1 percent at 12.90 euros at 0925 GMT, making them the strongest performers in the FTSEurofirst 300 index of leading European stocks.

Commerzbank analyst Ingo Schachel said both European steel units had reported higher fourth-quarter earnings than expected, partly due to better volumes, but mainly because of rising prices.

"Regarding the outlook, it's good to be in line with consensus ... After five years of negative earnings revisions, investors find it reassuring that the steel reporting season is rather stable or even has a minor upside," he said.

ArcelorMittal, more than double the size of its nearest rival, reported fourth-quarter core profit (EBITDA) of $1.91 billion, higher than the average $1.80 billion average expectation in a Reuters poll of brokers.

ArcelorMittal had said its core profit (EBITDA) in 2013 would be greater than $6.5 billion. In fact the figure came in at $6.89 billion.

The company said that would rise to $8 billion in 2014, in line with the Thomson Reuters I/B/E/S mean estimate for 2014 of $8.1 billion.

It said this was based on a 3 percent increase in steel shipments, a 15 percent rise in shipments of iron ore, average ore prices in line with the market consensus and a moderate increase in steel margins.

Capital expenditure would increase to between $3.8 and 4.0 billion in 2014 from $3.5 billion in 2013. However, Aditya Mittal explained the budget had not really risen, but some of the slated $3.7 billion spending in 2013 had simply rolled over.