BERLIN, Aug 28 (Reuters) - Indebted German vehicle parts supplier Schaeffler may cut production in the final quarter as slowing growth in its core European market drags on sales.

Schaeffler, which posted an 11.7 percent drop in first-half earnings before interest and tax (EBIT) to 780 million euros ($976.28 million), is mulling scenarios that include cutting staff hours, reducing shifts and restricting capacity, Chief Executive Juergen Geissinger said on Tuesday.

"We're bracing for slower growth in the second half," Geissinger said. "Uncertainty and risks characterise the economy in almost all regions ... We are not ruling out a reduction of shifts or capacity adjustments towards the end of the year."

The European debt crisis has forced many companies to look at their output, with U.S. carmaker General Motors' loss-making Opel division saying it will trim hours for several thousand workers at two plants in Germany.

Steelmaker ThyssenKrupp is also cutting hours, while GM's rival Ford Motor Co cut back production at its Cologne-based European factory in May and June, affecting 4,000 employees.

Yet Schaeffler, which sells almost a third of its products to European markets outside Germany, reaffirmed targets to increase sales more than 5 percent this year and achieve an EBIT margin of more than 13 percent. Non-German European sales shrank 2 percent in the first six months.

Herzogenaurach-based Schaeffler has no plans to reduce its holding in German auto parts and tyre maker Continental to speed debt reduction, said Chief Financial Officer Klaus Rosenfeld. Saddled with 7.1 billion euros of debt, Schaeffler owns 49.9 percent of Continental directly and another 10.4 percent through banks.

Rosenfeld said that Continental's possible return to the German stock market's benchmark DAX index in September would have "no immediate implications" for Schaeffler.

Composition of the DAX, which includes the country's top 30 companies, will be up for review on September 5 and Continental has said that it has a good chance of a return to the index it was relegated from in 2008. 

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