* Has no plans to cut output, keeps targets for 2011, 2012 * China credit situation driving drop in iron prices * Company says in talks with steelmakers on iron pricing By Brian Ellsworth and Brad Haynes RIO DE JANEIRO, Oct 27 (Reuters) - Brazilian mining giant Vale joined its rivals in pledging on Thursday no let up in iron ore production, even as prices slump, European buyers cancel cargoes and Chinese steelmakers clamor for price relief. Signaling a firm belief that the nearly 30 percent slump in spot market prices this month is a temporary blip, executives of the world's biggest iron ore producer said Chinese monetary policy easing should help bolster demand from its top consumer. Vale also confirmed further changes in the way iron ore is traded, saying the company that first broke the age-old annual contracts system is now in talks with customers to move from quarterly toward spot pricing. "We do not plan to make any cuts to production," said Chief Executive Murilo Ferreira in a conference call with reporters. "Vale is one of the companies with the lowest production costs. If anyone is going to shut production, it will have to be those with high production costs." The comments, a day after Vale's earnings missed analysts estimates due to a drop in Brazil's currency, show the company defiant in the face of skepticism about China's iron ore demand and worries about global economic growth.Company officials said earlier on an earnings conference call that Vale is sticking to its planned production targets of 310 million tonnes for 2011 and 320 million tonnes for 2012. Australian rivals BHP Billiton and Rio Tinto have also said they plan to keep ramping up output. Iron ore spot prices have tumbled almost 30 percent this month alone, dropping close to $120 per tonne on Thursday after reaching highs near $190 on slowing Chinese steel demand and head winds for the global economy. Tumbling prices will likely lead most Chinese customers to migrate toward pricing that is closer to the spot market, said Jose Carlos Martins, executive director for marketing, sales and strategy, adding that Vale was willing to accommodate that. But he warned they would not be able to migrate back to quarterly contract prices later if the spot price recovers as Vale expects it will. "It's not a free ride, it's something that both sides have to think about and look at what is better in the long term," Martins said. "We're trying to avoid opportunistic situations." PRICE TUMBLES Martins said the company has diverted two or three cargoes to China per month that were previously bound for other destinations such as Europe. He attributed this to increased iron ore output rather than changes in market conditions. Rio Tinto this week said Vale's increase in shipments to China was contributing to the price decline. The spot price for ore with 62 percent iron content dropped to $120.20 per tonne on Thursday , continuing a steep decline that began in early September. Analysts say falling steel demand has been driven by the Chinese central bank's efforts to control inflation by tightening credit and raising interest rates, choking off funding for buildings, roads and railways. Vale said prices were falling because of a production increase in Australia and changes in credit policy that prevented Chinese traders from borrowing against their inventories, which spurred many to sell off their iron stocks. "We have some signals that loosening of the monetary policy (in China) is coming," said Martins. Analysts believe China is unlikely to ease monetary policy in the short term, meaning steel output growth could fall by half and put further downward pressure on iron prices. Vale on Wednesday said third-quarter profit dropped 18 percent from a year earlier, missing analysts' estimates as a tumble in Brazil's currency caused losses on derivatives and boosted its foreign debt load. But management highlighted an increase in iron ore production, which rose 6 percent from the year earlier to 88 million tonnes. The company's shares were up 2.7 percent to 41.83 reais in Sao Paulo following the earnings and a deal that could ease the long-running euro zone debt crisis. The company's total investments for 2011 will likely reach $18.5 billion to $19 billion, Ferreira said, well below the originally planned outlays of $24 billion. Vale said in its earnings release that environmental licensing had been a major factor in slowing progress of new projects.