* Q3 gross pft drops 45 pct y/y on constant currency basis
* Not planning further job cuts in most markets
* May have to pay back UK VAT refund of some 36 million stg
* Shares rise as much as 4 percent
(Recasts, adds CEO and analyst comment, background)
By Catherine Bosley
LONDON, Oct 7 (Reuters) - Recruiter Michael Page reported a 45 percent drop in third-quarter gross profit, but said it was beginning to see signs of stabilisation especially in Germany, sending its shares up as much as 4 percent.
However, Britain's second-largest recruitment agency also said it might have to pay back some 36 million pounds ($57 million) to the British government for a VAT refund, although analysts differed as to how much that bill would hurt.
"We have seen a lot of stabilisation around the world," Steve Ingham, Michael Page's chief executive told Reuters. "It is difficult to predict ... But generally speaking, the trend at the moment is of stabilisation."
The company, which specialises in placing professional staff, reported a gross profit of 82.2 million pounds in the third quarter, down 42 percent on last year or 45 percent at constant currencies.
In its largest region -- Europe, the Middle East and Africa -- Michael Page said profit dropped 49 percent on a constant currency basis versus a year earlier to 35.7 million pounds.
Recruitment companies have suffered this year as companies around the world have cut staff to save costs owing to the recession. Michael Page posted a 49 percent drop in first-half profit and over the past year cut about a third of its staff, or some 1,200 employees.
Permanent job placements in Britain rose at their fastest pace in 18 months in September, a survey by accountancy KPMG showed this week, underlining recovery prospects in the recruitment sector.
"The numbers look pretty much as we would have expected, probably a touch better," said Kevin Lapwood of brokerage Seymour Pierce. "The important thing obviously is the reversal of the VAT rebate. It's quite disappointing.
TAX REFUND, JOBS
Michael Page, which had about 138 million pounds in net cash at the end of September, said it had received word from British tax authorities it would have to pay back some 36 million pounds it had been refunded earlier this year for having overpaid value-added tax.
Lapwood said the VAT claim had propelled the company's share price in recent months and news it might have to repay the money had prompted Seymour Pierce to cut the stock to "sell" from "underperform".
But analyst Henry Carver at KBC Peel Hunt said the possible repayment posed little difficulty as it did not constitute cash needed for operations.
"It's not one of the things investors worry about," Carver said. "It almost accredits the management to show that kind of figure can be dealt with at this kind of stage in the market."
CEO Ingham said Michael Page would appeal against the tax ruling. "It could be that we end up retaining it, it could be (we) end up paying it back or just part of it."
Michael Page, which cut headcount by 4 percent during the period, said it was not planning further job cuts in most markets and said hiring picked up in Britain in September.
The company said many of the job losses had been through natural attrition and had targeted the lowest-performing fee earners, rather than management.
Shares in the company were up 3.8 percent at 0831 GMT. They have risen 60 percent so far this year, outperforming the UK services sector index.
Fellow recruiter Hays will publish a third-quarter trading update on Thursday. (Editing by David Holmes) ($1=.6301 Pound)