Jan 20 (Reuters) - French train maker Alstom's shares had a rocky morning on Thursday, after its quarterly update on sales and orders sparked a mixed response from traders and financial analysts.

The stock initially climbed over 3% before plummeting to trade down 5% and trigger an automatic dealing suspension on Euronext Paris, as investors sold off holdings built up during a strong rally at the turn of the year.

Alstom reported higher sales and orders for October-December, its fiscal third quarter, fueled by growth in Europe and bigger market clout thanks to its acquisition of Bombardier's rail unit a year ago.

However, finance chief Laurent Martinez told analysts the level of sales earning no margin would remain the same over the second half of its fiscal year and into the next as it works through a backlog of unprofitable business.

"The shares started moving within minutes of that comment," said Redburn analyst James Moore, who believes the market will now adjust its profit expectations for the near future.

Alstom confirmed all its financial targets, including a return to a positive-free cash flow over October to March, after first-half outflows reached nearly 1.5 billion euros.

It had previously feared an even higher outflow after marking up provisions for integrating some challenging projects it inherited from Bombardier.

The 5.5 billion-euro acquisition, which is approaching its one-year anniversary, should make the group the world's second-biggest player in its sector behind China's CRRC .

Alstom said the integration was on track and indicated it would not need to take further provisions.

The company, which makes trains and signaling systems for urban and regional rail networks, reported third-quarter sales of 3.92 billion euros ($4.45 billion), up 6% on a proforma basis. Orders were up 5% on the same basis to 4.58 billion.

The stock was down 1.3% at 1310 GMT.

($1 = 0.8811 euros) (Reporting by Sarah Morland and Olivier Sorgho Editing by Sherry Jacob-Phillips and Mark Potter)