* Alcatel ranks 85th among French firms by market cap
* Alcatel stock has tumbled 80 pct in past 18 months
* From 97 euros in 2000 to record low of 71 cents in Oct
* Shares among most shorted stocks across Europe
By Blaise Robinson and Alexandre Boksenbaum-Granier
PARIS, Nov 6 Embattled telecom gear maker Alcatel-Lucent risks being kicked out of France's CAC 40 index in a potential reshuffle next month, analysts and fund managers said on Tuesday.
Shares of Alcatel, which is in a downsizing spiral as it struggles with stiff competition and weak demand, have plummeted more than 80 percent in the past 18 months, with the company's market capitalisation shrinking to 1.8 billion euros ($2.3 billion) - 85th among France's biggest listed companies.
The stock, listed on the CAC 40 since Paris' benchmark index was created a quarter of a century ago, was once worth 97 euros during the tech bubble in 2000. It tumbled to a record low of 71 euro cents last month.
"It's really the big candidate for an exit from the CAC 40," said Christophe Wakim, index analyst at Exane BNP Paribas in Paris. "It's out of France's top 60 stocks in terms of market capitalisation, although it's been in the top 30 for turnover in the past 12 months.
"It's quite unusual for the committee to make changes in December, but Alcatel is clearly at risk. It almost got demoted in the last shake-up in September. I think it will depend on what the stock does in the next few weeks and what the outlook for the company looks like."
Shares in the CAC 40 attract investment funds which play index-tracking strategies, meaning that a stock's ejection from the index tends to be bad news for its value.
Wakim estimated the selling pressure on Alcatel's stock resulting from an exit from the index would be around 55 million euros, or 69 million shares.
The NYSE-Euronext indexes committee that manages the CAC 40 gathers every quarter and, although the exact dates are not publicly disclosed, the committee is expected to meet in early December.
A Paris-based spokeswoman for Euronext declined to comment.
The two official criteria for index inclusion are the free-float adjusted market capitalisation and a stock's trading volume, but unlike for Germany's DAX, the UK's FTSE 100 and Europe's STOXX 600, there are no specified thresholds for the two criteria, giving leeway to the committee.
Despite waves of cost cuts, the struggling telecom equipment maker posted a quarterly loss last week, saying it had burned through 1 billion euros ($1.28 billion) in the first nine months of the year and warning that it might have to sell assets to strengthen its balance sheet.
An Alcatel spokeswoman declined to comment.
"When you look at the stock's trajectory over the past little while, it doesn't make sense that it's still in the CAC," Diamant Bleu Gestion fund manager Christian Jimenez said. "Being kicked out of it would just confirm the punishment already inflicted by the market.
"When you have to sell assets to get refinancing, you're forced to sell your best units, losing sources of cash flow. On top of that, it's not really great timing to sell assets at a good price."
Over the past few months, Alcatel has become one of the favourite European targets of short sellers, who profit from falling stock prices by borrowing shares from long-term institutional investors, selling them on the market, then buying them back at a lower price.
Alcatel has 16 percent of its shares out on loan, according to Markit data, making it the most shorted stock in the CAC 40 by far, and one of the most shorted stocks across Europe.
By comparison, stocks on Paris' blue-chip index have 3.4 percent of shares out on loan on average. ($1 = 0.7823 euros) (Editing by Patrick Graham)