UPDATE 1-Nintendo Q3 up 21 pct, but outlook cut

* Q3 operating profit up 21 pct on Wii, DS demand

* Cuts annual forecast by 15.9 pct due to stronger yen

* Shares end up 1.6 pct ahead of earnings (Recasts to lead on Q3, adds details, background)

TOKYO, Jan 29 (Reuters) - Japan's Nintendo Co Ltd (7974.OS) posted a 21 percent gain in quarterly operating profit on brisk demand for its Wii video game console and DS handheld game player, but it cut its forecast due to a stronger yen.

Nintendo booked strong sales for both the Wii and DS in the year-end holiday shopping season, proving itself relatively resilient to a global economic slowdown that has slammed rival electronics firms.

But Nintendo's outlook is tempered by a rising yen, which makes its consoles less competitive and cuts into the value of overseas earnings. Nintendo gets more than three-quarters of its sales outside Japan.

The company, locked in a three-way battle with Microsoft Corp's (MSFT.O) XBox and Sony Corp's (6758.T) PlayStation in the video game market, lowered its forecast for the year to end-March to 530 billion yen from a previous 630 billion yen estimate.

The new forecast compares with a market consensus for 604 billion yen in a poll of 18 analysts by Reuters Estimates.

Nintendo had been widely expected to trim its outlook given that it was based on dollar/yen and euro/yen assumptions of 100 and 140, respectively. The dollar is currently fetching about 89 yen, while the European currency is trading around 118 yen.