ZURICH/PARIS (Reuters) - Nestle (>> Nestle SA) was selling its 10 percent stake in Swiss fragrance and flavour maker Givaudan (>> Givaudan S.A.) on Friday for as much as 1.08 billion Swiss franc (733.5 million pounds), as it concentrates resources on its core food businesses.

The world's biggest food group cut its sales outlook earlier this year and said it would dispose of underperforming businesses to slim down its sprawling portfolio which spans Perrier bottled water, KitKat chocolate and Gerber baby food.

"Nestle is confirming its intention of better allocating its capital," said Vontobel analyst Jean-Philippe Bertschy.

The proceeds could be used for bolt-on acquisitions or a share buyback, said Kepler Cheuvreux analyst Jon Cox.

There has also been market speculation in recent months about whether Nestle will sell a 30 percent stake it has in the world's biggest cosmetics firm, L'Oreal (>> L'OREAL), when restrictions on selling it loosen in April 2014.

"Additionally, investors might now see a disposal of the L'Oreal stake as more likely," said Helvea analyst Andreas von Arx.

Shares of L'Oreal were up 3.2 percent at 126.30 euros.

Last month, Nestle sold the bulk of its Jenny Craig weight-loss business and sources familiar with the matter have told Reuters Nestle is looking for a buyer for its PowerBar energy bars.

Traders on Friday said the sale of the Givaudan stake, managed by Goldman Sachs (>> Goldman Sachs Group Inc) through an accelerated book building, was being offered at a price range of 1,150-1,170 Swiss francs a share, valuing the entire stake at as much as 1.08 billion Swiss francs ($1.20 billion).

That would mean the placement was done at a 5.3-7.0 percent discount to Thursday's closing price of 1,236 francs. Givaudan shares fell as much as 5.3 percent in early trade on Friday and were down 3.6 percent at 1,191 francs at 10:17 a.m. British time.

Shares of Nestle, which said in October it had a list of brands that have underperformed for too long and need to be sold, were up 1.3 percent at 65.35 Swiss francs at 1012.

Nestle acquired the stake in Givaudan, one of its suppliers, 11 years ago as part of a deal to sell Givaudan its food ingredient company FIS for 750 million francs in cash and stock.

The move was also strategic, in helping to prevent a takeover of Givaudan, which was founded in the late 19th century and spun off from Swiss pharmaceuticals group Roche (>> Roche Holding Ltd.) in 2000.

Today it is the world's top supplier of fragrances, extracts and flavourings with customers ranging from soup and soap maker Unilever (>> Unilever plc) to perfume makers like Dior (>> CHRISTIAN DIOR) and Prada (>> Prada S.p.A.).

Its shares have gained 153 percent since the FIS sale was announced in January 2002.

"Nestlé has been very satisfied with its holding but believes now is the appropriate time to divest," it said in a statement.

Nestle is the second biggest shareholder in Givaudan with a 10.03 percent stake as of 27 November. U.S. billionaire Bill Gates is the top shareholder with 10.3 percent.

(Additional reporting by Astrid Wendlandt in Paris and Martinne Geller in London; editing by Jane Merriman and Elaine Hardcastle)

By Caroline Copley and Blaise Robinson