UPDATE 1-Australia's Aristocrat year profit up 3.4 percent

(Adds company comment)

SYDNEY Feb 26 (Reuters) - Australian gaming machine maker Aristocrat Leisure Ltd (ALL.AX) reported a 3.4 percent rise in full-year profit, dented by smoking bans and a strong Australian dollar, but said momentum was positive for 2008.

Aristocrat, the world's No. 2 slot machine maker, said this year's earnings were expected to be weighted toward the second half.

Regulatory approvals in California and Florida would significantly grow demand in North America, and sales had been strong in Japan in recent months.

"I am disappointed with the modest (2007) growth," said Aristocrat Chief Executive Paul Oneile.

"The growth in key markets which we had been expecting in 2007 now looks more likely to emerge over the next 12 months given the positive signs we are starting to see in our key international markets," he said.

Aristocrat had said in October it expected 2007 profits to be in line with the previous year, crimped by smoking bans in Australian casinos, tough market conditions in North America and Japan as well as further appreciation of the Australian dollar.

Aristocrat's net profit for the 12 months to Dec. 31 was A$247.2 million ($229 million), from A$239.0 million a year earlier. Eight analysts had on average forecast A$241.2 million, according to Reuters Estimates.

Aristocrat said it would spend 9.5 percent more on research and development as it focused on the future.

"Regulatory and market developments over the last 4 to 5 months have provided positive business momentum for 2008," the company said.

"The catalysts for growth in the gaming industry are in place and the group continues to see strong growth potential as markets open up and new technologies are introduced."

Shares in Aristocrat closed Monday at A$9.90, down 12 percent this year, in line with the broader market .AXJO. The stock traded above $17 a year ago. ($1=A$1.08) (Reporting by Miranda Maxwell)