STOCKHOLM (Reuters) - Swedish fashion retailer H&M is banking on lower prices and a wider range of trendy clothing compared to basics to drive sales among cautious consumers in the crucial shopping months leading up to the end of the year.

Shoppers are already starting to browse for holiday items and H&M recently launched its homeware collection for the holiday season, CEO Daniel Erver said, adding that value for money will be critical as households are still under financial pressure.

H&M is the first global retailer to offer insights into its outlook for the upcoming holiday shopping season, a critical sales driver for the sector.

"We see a high search interest, actually, in holiday (products) already now," Erver told Reuters in an interview, referring to online search trends.

He was speaking after the retailer ditched its hope for a 10% operating margin this year and reported weaker than expected third-quarter profit, but said it sees sales for September - the first month of its fourth quarter - jumping 11% compared to a year ago.

While H&M sells many cheap evergreen basics like $19.99 jeans and $7.99 T-shirts, Erver said it is shifting to a bigger share of trendy pieces that people will buy no matter the weather.

"Where we are shifting and doing the biggest leap is updating the assortment to make it more relevant, to make it in current fashion, updated aesthetics, that's where we're performing the best and that's also the least weather-dependent," he said.

CELEBRITY APPEAL

Shiny leather dresses with silver studs, knee-high boots, and mohair tops and skirts embellished with rhinestones all featured prominently in H&M's autumn/winter collection modelled by pop star Charli XCX, who performed at H&M's London Fashion Week launch two weeks ago, and supermodel Kate Moss' daughter Lila Moss, among other celebrities.

A fluffy leopard print coat worn by Charli XCX in the advertising campaigns sold out in minutes, Erver told Reuters. He is betting that star power will boost H&M's brand and justify the marketing splurge that is part of his turnaround strategy.

"The focus on fashionability, brand heat and activating collections with collaborations has always been probably the strongest piece of H&M's business, and basics have just become more and more competitive," said Deutsche Bank Research analyst Adam Cochrane.

Increasing marketing spending is "100% the right thing to do to reignite the H&M brand", Cochrane added.

H&M will still have to use discounts to lure cash-strapped shoppers, though, and on H&M's U.S. website many of the items in the autumn/winter collection were marked down between 15% and 42%. A burgundy synthetic leather skirt, slashed to $10.49 from $17.99, showed as sold out.

Overall U.S retail sales growth is expected to be muted during the holidays as prudent shoppers hold out for the best bargains, industry experts predict.

North America is a "more challenged" region for consumer demand, Erver said.

(Reporting by Helen Reid and Marie Mannes; Editing by Emelia Sithole-Matarise)