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* Q1 organic sales growth beats forecasts
* Says expects further improvement in second half
* Shares up 3.4 percent, no comment on Liberty talks (Adds CEO, analyst comments, details, background, shares)
By Kate Holton
LONDON, July 24 (Reuters) - Vodafone said anacceleration in quarterly sales growth should continue throughthe year, showing its recovery is moving on to a strongerfooting and boosting its shares on Friday.
The world's second-largest mobile operator by customers,which reported a return to quarterly sales growth for the firsttime in nearly three years in May, has been hit by weak consumerspending in its big European markets and price cuts imposed byregulators around the world.
But a steady recovery in Europe, helped by consumers payingfor superfast 4G tariffs and the offer of new services such aspay-TV, helped the British firm to beat forecasts forfirst-quarter underlying sales growth on Friday.
"We ... expect the second quarter to be similar to thecurrent one and then to have another improvement in the secondhalf of the year," Chief Executive Vittorio Colao toldreporters.
Shares in Vodafone were up 3.4 percent in afternoon trading,topping the FTSE 100 Index leader board.
Three-month service revenue, a key measure that strips outacquisitions and currency moves, grew 0.8 percent on an organicbasis, ahead of the 0.1 percent it recorded in the fourthquarter and ahead of analysts' average forecast of 0.5 percent.
Vodafone, with 449 million customers around the world inmarkets ranging from Albania, Australia and Turkey, said servicerevenue in Europe fell 1.5 percent, marking an improvement onthe 2.6 percent fall from the previous three months.
"Vodafone has bucked the trend of a weak wider market withan update which confirms its ongoing improvement," said RichardHunter, Head of Equities at Hargreaves Lansdown Stockbrokers.
STATE OF FLUX
Involved in some of the biggest corporate deals in recentdecades, Vodafone is again caught up in a period of change.
Having revealed in June it was in talks with Liberty Global about exchanging selected assets, Colao said on Fridaythere was no update on the talks. The group also declined to saywhether it would go ahead with an initial public offering of itsIndian business, which is one option being considered.
Galvanized by stronger trading, however, Colao ratcheted upthe pressure on BT, accusing Britain's dominant telecomsprovider of holding the country to ransom by abusing itsposition at the heart of the industry to fend off tougherregulation.
That was in response to a comment from BT that aninvestigation by regulator Ofcom into whether BT should bebroken up could lead to the company holding off investment inits network.
Colao told reporters that had the potential to damage thewhole industry, as providers rely on the BT network. BT is alsoin the process of buying the country's largest mobile operatorEE, while Vodafone is moving into TV in Britain, putting the twoon a direct collision course.
Saying BT was offering the choice of investment orcompetition, he said: "this is holding the country to ransom."
"We think this country needs more fibre, not more copper.This country needs more broadband, not more expensive football,"he said, in reference to BT spending heavily on sports rights. (Editing by Paul Sandle and Mark Potter)
