* 2011 core profits fall to 130 mln euros

* Shares close 6.3 percent lower

* Sees Q1 advertising sales down 15 pct (Adds comments on Q1 advertising, circulation)

MILAN, March 19 (Reuters) - Italian books and magazines publisher Mondadori unexpectedly scrapped its 2011 dividend, saying conditions in its markets remained significantly negative, hitting its shares.

"There are currently no signs of turnaround that could significantly alter the trend, at least in the first half of the year," the publisher of Grazia magazine said on Monday.

The 105-year old company, controlled by former prime minister Silvio Berlusconi, said it proposed to devolve the entire amount of net profit to extraordinary reserves.

Its core earnings fell an expected 7 percent to 130.4 million euros ($172.7 million) in 2011, hit by costs to develop its digital business, a recession-driven drop in advertising sales, as well as lower book revenues.

Mondadori said net profit rose 17.8 percent to 49.6 million euros from 2010 when it was hit by tax charges. The figure was in line with analysts expectations

Its shares ended 6.3 percent lower at 1.4 euros, after hitting their lowest level since the start of January.

"The missed dividend is a bad signal. The market was expecting a payout of 0.14 euro per share," a Milan-based media analyst said.

During an analyst meeting, Chief Executive Maurizio Costa said he expected advertising sales to fall 15 percent in the first quarter of 2012 and announced plans to cut costs for 30 million euros this year.

Chief content officer Roberto Briglia said circulation revenues for the group's Italian magazines should fall 4-5 percent. ($1 = 0.7552 euro) (Reporting By Danilo Masoni and Claudia Cristoferi, editing by William Hardy)

• A Permanent Economic Emergency