* Ads down 11.4 pct in first 9 wks of 2011 vs 6.4pct in 2010
* Chief Executive John Fry to stand down by March 2012
* FY op profit up 3.9 percent to 72 million pounds
* Revenue down 6 percent to 398 million
* Shares down 21 percent
(Adds details, reaction)
By Kate Holton
LONDON, March 9 (Reuters) - British regional newspaper publisher Johnston Press Plc endured a worse start to 2011 than expected after government spending cuts hammered its advertising revenue, wiping a fifth off its market value.
The group, whose titles include the Scotsman and the Yorkshire Post, said total advertising for the first nine weeks of 2011 fell 11.4 percent compared with a drop of 6.4 percent for the whole of 2010.
The gloomy update mirrored a similar outlook from rival Trinity Mirror and prompted analysts at brokerage Altium to suggest the ad recovery seen in other media markets could by-pass press companies, which are also struggling with falling circulation.
The weak trading, together with Chief Executive John Fry's decision to stand down by March 2012 and a forecast that the economic outlook for 2011 would remain uncertain, sent Johnston shares down more than 20 percent.
Finance Director Stuart Paterson told Reuters the advertising market had been poorer than expected. "Once the government got in, public sector recruitment really dropped," he said.
The British government has cut its spending on advertising as part of an overall drive to cut its budget deficit.
Johnston shares were down 21 percent to 9.7 pence by 0850 GMT, valuing the company at around 62 million pounds. The decline wiped out a rally which had carried the stock to a near three-month high of 13.25p earlier this month.
Analysts at brokerage Numis said they had placed their target price for Johnston shares and their recommendation on the stock under review.
"Given the lower base, (the) weak start to 2011 and mindful of inflationary cost pressure in newsprint we are downgrading our full-year 2011 pretax profit (forecast) from 40 million pounds to 30 million," they said in a note.
The negative factors overshadowed the fact the group posted its first underlying operating profit increase since 2004, due to cost cuts and stronger digital advertising revenue.
Operating profit rose 3.9 percent to 72 million pounds, after the group cut total operating costs by 30.1 million pounds, on revenue down 6 percent to 398 million.
"The board's short-term priority remains debt reduction," it said. "No final dividend is proposed."
The group said it would start looking for a new chief executive after Fry said he would step down from his role by March 2012. (Editing by Julie Crust and David Holmes)