UPDATE 1-Gemfields quarterly production, grades fall

(Adds outlook, analyst comment, background)

May 2 (Reuters) - Precious stones miner Gemfields Plc reported a sharp fall in third-quarter production ashigh unseasonal rainfall in Zambia hurt output from its coreKagem mine.

Production fell about 45 percent to 3.6 million carats ofemerald and beryl for the quarter ended March 31.

Gemfields, which produces about a fifth of the world's roughemeralds, reported grade of 198 carats per tonne in the thirdquarter compared with 265 carats per tonne a year earlier.

However, Gemfields said it expected an improvement in gradesat Kagem and overall production volumes in line with itsexpectations.

The London-listed miner has long held ambitions of creatinga stable world market for emeralds and polishing the gem's imagein the same way that Anglo American Plc-owned De Beerschampioned diamonds from London's Bond Street to China.

The company said its luxury brand Fabergé reported a 134percent jump sales and sales orders agreed during the quarter.

Gemfields' first ruby auction is scheduled to take place inSingapore in mid June.

"(It was) a difficult quarter operationally for Gemfieldsalthough this is no surprise given the weather issues compoundedby the inherent variability of gemstone mining, which ischaracterised by grade and ore variability," analysts at NumisSecurities wrote in a note.

Gemfields shares were down 4.4 percent at 38.00 pence inearly trading on the London Stock Exchange on Friday. (Reporting by Karen Rebelo in Bangalore; Editing by GopakumarWarrier)

Gemfields Grou.