By Katie Reid

ZURICH (Reuters) - Swatch Group (UHR.VX), the world's largest watchmaker by sales, posted a forecast-beating full-year profit and confirmed its upbeat outlook for 2010, easing worries a flagging economic recovery may hit demand.

Speedmaster Professional Moonwatch Apollo 11 from Omega

Net profit fell 9 percent to 763 million Swiss francs ($710 million), ahead of the average estimate of 698 million francs in a Reuters poll.

Swatch Group expects demand for its timepieces to tick higher this year thanks partly to key brand Omega's role as the official timekeeper at this year's Winter Olympics in Vancouver.

The impressive profit number adds to growing signs the watch industry may be emerging from its most severe slump in demand in decades and comes after a flurry of positive comments from other luxury goods makers such as Hermes (HRMS.PA), LVMH (LVMH.PA) and Burberry (BRBY.L).

"The main reasons for this positive outlook are the excellent start in 2010, increasing order entries as well as the improving economic environment and market confidence worldwide," Swatch Group said in a statement.

The group behind top-end watch brands such as Blancpain and Breguet said last week it is aiming for a record year in 2010 as demand for its timepieces rebounded in recent months.

BEATING EXPECTATIONS

"The 2009 figures are clearly ahead of expectations and we have to increase our EPS estimates by roughly 10 percent," Vontobel analyst Rene Weber said, adding the only slightly negative surprise was the cut in the dividend to 4.00 francs per bearer share from 4.25 francs a year ago.

One Zurich-based trader said the results were likely to boost shares in the group, which have come under pressure recently as investors have sought to lock in profit on the stock after a recent rally.

Swatch Group's operating margin dropped to 17.6 percent from the 21.2 percent posted in the year ago period, but profitability picked up in the second half and the full-year figure beat expectations. Stronger sales are seen boosting profitability this year.

Swiss rival Richemont (CFR.VX) last month posted forecast-beating sales over the Christmas period thanks to booming sales in the Asia-Pacific region, while independent watchmakers Girard-Perregaux and Parmigiani Fleurier expect the wealthy to splash out on pricey wares this year.

(Editing by Sharon Lindores)

($1=1.074 Swiss Franc)