(Fixes spelling of cuts in headline)
* Q4 net income beats poll on strong liquid crystals unit
* Demand from China, strong dollar boosts unit
* Also benefiting from job cuts that followed drug setbacks
* Shares rise as much as 5.3 pct to record high
By Ludwig Burger
DARMSTADT, Germany, March 7 (Reuters) - Germany's Merck KGaA is predicting strong growth in earnings this year and next as cost cuts and Chinese demand for liquid crystals used in televisions outweigh recent setbacks in its drugs business.
Shares in the world's largest maker of liquid crystals for flat panel TV displays jumped as much as 5.3 percent to a record high on Thursday, after the family-controlled company beat fourth-quarter profit expectations.
"The liquid crystals business really seems to have fared better than expected, also supported by a strong U.S. dollar," said Thomas Kaufmann, who analyses healthcare stocks for Credit Suisse's private banking arm.
A higher dollar versus the euro helps Merck's TV chemicals unit because it incurs most of its costs in euros and exports heavily to Asian TV panel makers, whose local currencies are often linked to the U.S. currency.
Merck said it was benefiting from China's emerging TV manufacturing industry, which has grown to become a bigger market for Merck than Japan, a major home of TV production.
An oversupply of TV panels eased late last year and Corning Inc, the largest maker of speciality glass for liquid-crystal displays, said in January it expects the number of TVs sold in 2013 to rise and a trend to larger TVs.
Merck, which is also looking to rebuild a drugs pipeline weakened by setbacks, said it made fourth-quarter net income of 272 million euros ($354 million), beating analysts' average forecast of 208 million in a Reuters poll.
Adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) rose 16 percent to 790 million euros, also topping a forecast for 785 million.
At 1120 GMT, Merck shares were up 4 percent at 113.4 euros, off an earlier high of 114.8 euros but still among the biggest rises by a European blue-chip stock.
Merck predicted a significant increase in net income in 2013 and 2014 as it continues to benefit from job cuts, but it cautioned there would be no major technology launches at its chemicals business over the next two years.
A big product upgrade helped Merck shore up its position as the industry leader in liquid crystals over the last two years and analysts have been eager to learn about new technologies under development at the unit.
Analysts expect net income to jump to 1.77 billion euros in 2013 and 1.88 billion in 2014, up from 567 million in 2012, according to Thomson Reuters I/B/E/S Estimates.
Merck, which traces its roots to a 17th century pharmacy, is looking to buy rights to experimental medicines in early stages of development to gradually rebuild its drugs pipeline.
Capping a string of setbacks, the company's Stimuvax cancer vaccine and brain tumour treatment Cilengitide failed in recent drug trials.
Merck has continued to raise prices in the United States for its best-selling drug Rebif against multiple sclerosis, but the injectable drug will face increasing competition from new oral MS treatments, such as Novartis AG's Gilenya and Sanofi SA's Aubagio.
$1 = 0.7692 euros Editing by Mark Potter