UPDATE 2-Steel recovery lifts Thyssenkrupp as market awaits Tata tie-up

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* Materials businesses earn cost of capital in first nine months

* Market awaits news on Tata Steel merger

* Q3 EBIT 620 mln eur vs Reuters poll avg 493 mln eur

* Cuts FY FCF forecast due to early closing of CSA sale

* Shares indicated 0.3 percent higher (Adds trader quote, shares, M&A context)

By Christoph Steitz

FRANKFURT, Aug 10 (Reuters) – Thyssenkrupp posted higher-than-expected third-quarter group orders and profits at its steel business in Europe, which CEO Heinrich Hiesinger is hoping to merge with its counterpart at Tata Steel.

Helped by a recovery in steel prices, the company posted a 14 percent rise in third-quarter order intake to 10.7 billion euros ($12.6 billion) and adjusted earnings before interest and tax (EBIT) of 620 million.

Analysts had, on average, expected order intake of 10.3 billion euros and adjusted EBIT of 493 million.

“We are pleased by the recovery in earnings at the materials businesses. We have achieved the minimum level necessary to cover the cost of capital,” Hiesinger said in a statement.

Quarterly operating profit at Steel Europe more than doubled to 232 million euros, well above the poll average of 187 million.

Shares in Thyssenkrupp, which makes everything from steel and elevators to submarines and car parts, were indicated to open 0.3 percent higher in pre-market trade.

Investors are, however, growing impatient about the efforts of Hiesinger to merge Steel Europe with the European steel business of Tata Steel, which sources say he hopes to agree before the end of next month.

“Keep in mind the market awaits a solution for the European steel business and Thyssen has to deliver on this matter now,” a Frankfurt-based trader said. “Gearing remains very high.”

Thyssenkrupp did not comment on the matter in its nine-month report but said large swings in steel and raw material prices were a key argument for its focus on more stable and better performing business lines, most notably its elevators business.

Thyssenkrupp kept its outlook for sales and profits but toned down its forecast for free cash flow before M&A, citing the sale of its Brazilian steel mill CSA, which closes earlier than expected.

It now expects free cash flow before M&A to be negative in the mid to higher triple-digit million euro range. It was previously forecast to be a negative mid triple-digit million euro amount. ($1 = 0.8510 euros) (Editing by Georgina Prodhan and David Holmes)

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