* Citigroup downgrades Google to hold
* RBC cuts price target on stock to $680 from $700
* Kaufman Bros raises price target to $730 from $705
* Says margin compression is a concern for investors
* Shares down 6 pct in pre-market trade (Adds details from other research notes)
By Supantha Mukherjee
BANGALORE, April 15 (Reuters) - Shares of Google Inc fell 6 percent on Friday, a day after the search giant reported a spike in spending, irking investors and prompting a rare downgrade by a brokerage.
Google's 54 percent spending surge in the first quarter made investors worry that its new chief executive may take his eye off the bottom line to chase revenue growth. [ID:nN14279563]
Citigroup analyst Mark Mahaney downgraded Google to "hold" and cut his price target on the stock to $650 from $750.
The downgrade is the first for Google since S&P Equity Research lowered its rating in November. Most of the analysts covering Google has either a "buy" or a "strong buy" rating.
Google's first-quarter expenses were pushed up by its recent salary hike, new hires, increased marketing spend to attract new customers and promotion of its Chrome browser, analyst Mahaney said.
The company plans to hire more than 6,000 people this year, after taking a record 2,000 on board in the quarter and raising salaries by about 10 percent across the board on Jan. 1.
The search margins this year will be pressured by higher expenses that hurt first-quarter results, RBC Capital Markets analyst Ross Sandler said, and cut his price target on the search giant's stock to $680 from $700.
"The problem for most Google investors continues to be margin compression... and (this) is showing no signs of stalling," analyst Sandler wrote in a note to clients.
A host of other brokerages, including UBS, Wedbush, Goldman Sachs and Oppenheimer, cut their price targets on the stock.
However, Kaufman Bros analyst Mayuresh Masurekar raised his price target on the Google stock to $730 from $705 saying he doesn't view the expense growth as a major concern.
"It is investing for growth, which should lead to higher-than-expected revenue growth in 2012 and beyond," he said.
Under new Chief Executive Larry Page, Google is investing heavily to drive future growth, with an emphasis on social, Benchmark analyst Clayton Moran wrote in a research note.
Analysts expect Page to keep spending on new products to spearhead an aggressive push into areas such as social networking and mobile businesses. Google executives said on Thursday the dramatically stepped-up spending was part of the company's plan to chase new business opportunities.
BENEFIT OF DOUBT
While uncertainty around margin erosion likely weighs on the stock, it offers investors quality growth at a reasonable price, Benchmark's Moran said.
"We give Google the benefit of the doubt that investments will pay off and scale over time," he said.
The returns on Google's prior investments in mobile phone and display businesses have been good, but the returns on its new investments such as local and social search are uncertain, analyst Mahaney said.
"Google investors may take solace from the fact that the first quarter could mark the nadir for year-over-year margin shrinkage," Goldman Sachs analyst James Mitchell said.
Bank of America-Merrill Lynch, Goldman Sachs, Wedbush Securities, Oppenheimer, Kaufman Bros and Benchmark retained their top ratings on Google.
Shares of the company were down about 6 percent in pre-market trading, having closed at $578.51 on Thursday on Nasdaq. (Reporting by Vaishnavi Bala and Supantha Mukherjee in Bangalore; Editing by Saumyadeb Chakrabarty and Joyjeet Das)