UPDATE 1-Australia's CBA bank posts flat H2 profit

(Adds quotes, details, statement on ABN AMRO talks)

SYDNEY Aug 13 (Reuters) - Commonwealth Bank of Australia Ltd (CBA) (CBA.AX), the country's second-biggest lender, reported flat second-half earnings on Wednesday, in line with market expectations, and warned of a challenging year ahead.

The result, in the context of a global credit crisis and domestic economic slowdown, reassured some investors that Australian banks were still in relatively good shape.

"It has been a solid performance in what has been a challenging year for the global banking industry," Chief Executive Officer Ralph Norris said in a statement.

But the bank added: "The outlook is cautious going into the new financial year."

CBA is the first of Australia's four big banks to report in a market where global credit woes have begun to infect local banks, interest rates are at a 12-year high and economic growth has begun to slow, fuelling worries of large loan losses.

"I think they (the CBA results) are encouraging. The provisions they have taken are up but well within comfortable levels," said Mark Nathan, fund manager with Fortis Investment Partners.

"Australia is certainly going to get through (the credit crisis) without any material long-term impact. There's no risk of Australian banks going under," he added.

CBA said January-June cash profit was flat at A$2.3 billion ($2.0 billion) from A$2.33 billion the same period last year, and matching expectations of analysts who predicted an average cash profit of A$2.34 billion according to a Reuters survey.

Cash profit is after tax and minority interests but before pension plan expenses and treasury share adjustments.

CBA further eased investors' nerves on Wednesday by revealing, in a separate statement, it had quit talks to buy the ABN AMRO franchise in Australasia from Royal Bank of Scotland (RBS.L).

CBA shares are down about 24 percent so far in 2008, in line with a 25 percent drop in the seven-stock Australian banking sub-index .AXBAK.

Confidence in the Australian banking sector took a hit last month when top lender National Australia Bank (NAB.AX) and Australia and New Zealand Banking Group (ANZ.AX) issued profit warnings and announced major new loan-loss provisions.

(Reporting by Mette Fraende, editing by Mark Bendeich)