By Eric Auchard

SAN FRANCISCO (Reuters) - Google Inc (GOOG.O: Quote, Profile, Research) reported a weaker-than-expected 35 percent rise in net profit as the company blamed lower returns from managing its huge cash pile rather than softening sales of online advertising.

Shares of the company tumbled 8 percent to below $500 (250 pounds), as Wall Street has come to count on Google to deliver revenue and earnings surprises over and above expectations each quarter.

"It's hard to love the numbers," said Colin Gillis, analyst at Canaccord Adams. "There's the initial shock of this being the best company in the space and it just fell short."

The disappointing profit came as Google said second-quarter online ad revenue held up well across sectors and world regions despite a weaker global economy that has tripped up rivals.

Officials pointed to problems managing its cash -- now totalling $12.7 billion -- in the face of volatile interest rates, the cash drain of recent acquisitions and higher costs to hedge foreign currency risk as operations expand overseas.

Google shares fell as much as 10 percent from a Nasdaq close of $533.44. They recovered some to around $492 after Chief Executive Eric Schmidt reassured investors on a conference call about traffic and revenue.

"Traffic and revenue have held up well despite uncertain economic conditions, as everybody knows," Schmidt said.

Second-quarter net income rose to $1.25 billion, or $3.92 per diluted share, from the year-earlier quarter's $925 million, or $2.93 per diluted share. Excluding stock-based compensation costs, it was $4.63 a share, below a $4.72 average of Wall Street forecasts, according to Reuters Estimates.