UPDATE 1-RESEARCH ALERT-JP Morgan cuts AT&T to neutral

(Adds details)

July 24 (Reuters) - J.P. Morgan Securities downgraded AT&T Inc (T.N) to "neutral" from "overweight," and said it expects further deterioration in the wireline fundamentals of the U.S. phone company.

The company on Wednesday posted a higher quarterly profit, as stronger-than-expected growth in wireless subscribers compensated for a shrinking landline business.

To stem the decline in wireline customers, the company had invested heavily in high-speed Internet service, but the results showed high-speed Internet users rose by only 46,000 during the quarter to 14.7 million.

"Second-quarter results reflect the strong effect the economy and competition are having on AT&T's wireline business as demonstrated by rapidly rising access line losses and anemic broadband subscriber adds," JP Morgan analyst Mike McCormack wrote in a note to clients.

The analyst said he expected wireline performance to remain depressed, with no signs of an economic turnaround.

McCormack, who removed his $42 price target on the stock, said margin acceleration post Apple Inc's (AAPL.O) iPhone will be a longer-than-anticipated process, weighing on earnings growth of AT&T -- the phone's exclusive U.S. carrier.

AT&T shares closed at $33.06 Wednesday on the New York Stock Exchange. (Reporting by Adveith Nair in Bangalore; Editing by Vinu Pilakkott)