Centrica lifts earnings outlook as European power price swings boost trading

* Raises 2016 EPS forecast by 6.5 pct to 16.5 pence

* 2016 adjusted operating cashflow upgraded to 2.4-2.6 bln pounds

* Q4 trading business strong on power volatility (Adds details, background, share price)

By Karolin Schaps

LONDON, Dec (Shanghai: 600875.SS - news) 15 (Reuters) - Centrica (Frankfurt: A0DK6K - news) , Britain's largest energy supplier, lifted its annual profit forecast on Thursday after its trading division reaped the benefits of big price swings in the European power market and it managed to save more money than expected.

The utility, which owns household energy supplier British Gas, raised its 2016 adjusted earnings per share expectations by 6.5 percent to 16.5 pence and said adjusted operating cashflow would come to 2.4-2.6 billion pounds ($6.3 billion), compared with more than 2 billion pounds it previously expected.

The news sent its shares to a two-month high of 228 pence, up 4 percent, at 0936 GMT, the biggest gainer on the FTSE 100 index of leading shares.

"Our performance in the second half of the year has been strong and we expect to exceed our 2016 targets," said Chief (Taiwan OTC: 3345.TWO - news) Executive Iain Conn in a results statement.

Centrica's trading business did especially well in the fourth quarter as it benefited from power price volatility and making best use of its flexible gas contracts, it said.

The unexpected outages of several nuclear power plants in France over safety fears brought turmoil to the European power markets in recent weeks, with French and German day-ahead electricity prices spiking to multi-year highs.

Centrica acquired Danish energy trading company Neas earlier this year as part of a strategy to expand its energy trading exposure which paid off this quarter.

The utility also said tighter spending controls would boost its bottom line, with full-year capital investment now expected at around 900 million pounds, lower than the 1 billion previously set.

Cost cuts also include thousands of job losses, with around 3,000 job cuts made since last year as part of plans to shed 6,000 jobs by 2020.

The company and its competitors among Britain's "big six" suppliers have been able to regain some customers from small rivals as a rise in wholesale prices has put independent firms under pressure and forced them to increase tariffs.

Centrica said household account numbers were flat since its half-year update when it said it had lost 399,000 customers in the first six months of 2016 to 26.4 million.

Its British Gas business said this month that it had frozen standard energy prices this winter.

($1 = 0.7970 pounds) (editing by Susan Thomas and Keith Weir)