UPDATE 1-Ackman's Pershing pushing for Target board seats

* Pershing cuts its stake in Target

* Pershing pushes for Target board seats

* Says still believes Target shares undervalued

NEW YORK, Feb 26 - Pershing Square Capital Management has cut its stake in Target Corp but the hedge fund, led by activist investor William Ackman, is negotiating to get its nominees on the discount retailer's board.

In a filing with the U.S. Securities and Exchange Commission on Thursday, Pershing said it now has a roughly 7.8 percent stake in the retailer, down from 9.7 percent.

But it said it still believes in the "fundamental investment case for Target," and that its stock is undervalued at current market prices.

Pershing did not give details on how many board seats it was interested in or who it might nominate as directors. Pershing and Target could not be reached for an immediate comment.

The filing marks the latest effort by Ackman to push Target to change its business and boost its stock price.

Last year, he proposed Target spin off the land under its stores into a separate real estate investment trust, but Target rejected the proposal as "speculative."

Meanwhile, Target's shares have fallen 48 percent in the past year as the recession crimps shoppers' ability to buy its trendy clothes and home furnishings. This week, it reported a 41 percent drop in fourth-quarter profit.

In an unusual move earlier this month, Ackman sent a letter to investors, apologizing for the performance of his hedge fund that bets exclusively on Target.

"I am deeply disappointed by PSIV's dreadful performance and I apologize profusely for the fund's results to date," Ackman wrote, calling this "one of the greatest disappointments of my career to date."

Ackman, who tends to make only a few big bets in any of of his portfolios, made his concentrated bet on Target in 2007 when he raised $2 billion for PSIV, with roughly $1.3 billion coming from other hedge funds.

After Target rejected his real estate proposal in November, Ackman said he would put on hold until this year his talks with Target regarding the transaction.

Target shares rose 23 cents, or almost 1 percent, to $27.82 on the New York Stock Exchange and extended its gains to $28.43 after-hours.