* Expects year profit of around 30 million sterling
* Banks extend covenant test measurement period to July
* Mamut given 3 weeks to bid for Waterstone's - report
* Shares down 11.5 percent
(Adds report on Mamut bid deadline, analyst comment)
By James Davey
LONDON, April 5 (Reuters) - British music, books and games retailer HMV issued its third profit warning in three months, ratcheting up the pressure for it to raise funds by selling book chain Waterstone's or by issuing shares.
Shares in the 90-year-old company, which trades from about 700 stores in seven countries, fell 11.5 percent after it said on Tuesday it now expected underlying 2010/11 pretax profit of around 30 million pounds ($48 million).
Just last month analysts cut forecasts to a consensus 39 million, according to Thomson Reuters I/B/E/S data, after HMV trimmed its profit outlook to moderately below 45 million pounds. That alert followed another in January.
"Since the group's last update on March 1, trading conditions have remained difficult," HMV said, echoing comments from British retailers Dixons, Home Retail, and Mothercare, which all warned on profit last month.
In addition to tough macro headwinds, HMV, which employs 13,000 staff, is battling intense competition from the supermarkets and internet retailers as well as the fast-growing popularity of digital downloading.
"The intractable problem remains that HMV is King Canute to the incoming tide of digitalisation," said Investec analyst David Jeary.
"HMV needs to re-capitalise, probably via a combination of distressed asset sales and an equity raise," he said.
The firm, famous for its Nipper the dog trademark, has been shifting its emphasis from fast-declining CD and DVD markets into the growth markets of new technology products, live music and event ticketing. It is closing 60 stores and cutting costs.
STRUCTURAL PRESSURES
"The speed of deterioration in profitability of this business confirms that management's strategy is not arresting the very real structural pressures on the core retail business from on-line," said Seymour Pierce analyst Kate Calvert.
Last month HMV flagged higher-than-expected year-end debt of 130 million pounds and said it did not expect to meet conditions applying to its bank loans when tested in April.
The firm said on Tuesday its lenders, including the state-backed Royal Bank of Scotland and Lloyds Banking Group, had agreed to extend the measurement period for covenant tests to the 12 months to July 2.
This would provide the group with additional time to consider a rights issue or realise cash from the possible disposals of Waterstone's and HMV Canada, which the firm confirmed last month it was considering selling.
Billionaire Russian businessman Alexander Mamut, who owns 6.1 percent of HMV, has been linked with a bid for Waterstone's along with founder Tim Waterstone.
A report on Sky News said HMV had given Mamut three weeks to make a bid for Waterstone's. HMV declined to comment on the report, while Mamut was not immediately available for comment.
Mamut's war chest is set to be bolstered with the imminent initial public offering (IPO) of his mobile phone retail business Euroset.
HMV remains in talks with its lenders on potential changes to its agreements. It said its facilities remain "fully available" and its lenders "continue to be supportive".
Shares in HMV, which prior to Tuesday's update had lost 83 percent of their value over the last year were down 11.48 percent at 13.75 pence at 1330 GMT, valuing the business at about 57.2 million pounds. (Editing by Will Waterman and Hans Peters) ($1 = 0.6204 pound)