UPDATE 1-Gem Diamonds trims forecast for Letseng mine

(Adds details, analyst comment; updates share movement)

July 29 (Reuters) - Gem Diamonds Ltd said itrecovered 26 percent fewer carats in the first half comparedwith the second half of last year and cut its 2013 productionforecast for its key Letseng mine in Lesotho, sending its sharesdown 5 percent.

Gem Diamonds said it expected to recover between 95,000 and105,000 carats from Letseng in 2013.

Carats recovered during the six months to June 30 fell to42,268 from 57,234 in the second half of 2012.

The company said the shortfall was because of mining withinthe lower-grade main pipe, tonnage loss due to the installationof crushers, and mining within a region of high basalt content.

"Although higher grade recoveries are expected in H2 2013,this won't be sufficient to recover the full shortfall," thecompany said in a statement.

The Letseng mine located in the Maluti mountains in Lesothois known for its large white diamonds.

Gem Diamonds said the year had begun positively for therough diamond market and that it expected the supply of roughdiamonds to reduce in the short term.

"The production performance and downgrade are disappointing,although this is likely to be offset somewhat by a better marketoutlook," Numis Securities analyst Cailey Barker said in a note.

Gem Diamonds' shares were down 3.5 percent at 137 pence at0930 GMT on the London Stock Exchange on Monday. (Reporting by Karen Rebelo in Bangalore; Editing by SupriyaKurane)

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