UPDATE 3-Moody's profit tops view; caution hurts stock

* Profit falls 19 percent

* Results come after Warren Buffett reduces stake

* Outlook raised, but falls short of analyst forecasts

* Shares fall 7 percent (Recasts, adds analyst and CEO comments)

By Jonathan Stempel

NEW YORK, July 29 (Reuters) - Moody's Corp (MCO.N), the parent of Moody's Investors Service, said second-quarter profit fell 19 percent as weak economies and tight credit markets curbed demand for credit ratings.

The results topped analyst forecasts and Moody's raised its full-year profit projection, but the new outlook fell short of analyst estimates.

Chief Executive Raymond McDaniel said new issuance volume would likely fall in the second half of 2009 from the first half, weighing on ratings revenue.

Moody's shares were down $1.93, or 7 percent, at $25.69 on the New York Stock Exchange in midday trading.

"There is a lack of conviction we're going to see a strong second half in bond issuance," said Edward Atorino, an analyst at Benchmark Co in New York with a "buy" rating on Moody's. "Much of the structured finance issuance may never come back."

Results were announced a week after Warren Buffett's Berkshire Hathaway Inc (BRKa.N)(BRKb.N), Moody's largest shareholder, lowered its stake to 16.98 percent from 20.37 percent, the first reduction this decade. Buffett has not disclosed the reason for the change.

Quarterly profit attributable to shareholders of New York-based Moody's fell to $109.3 million, or 46 cents per share, from $135.2 million, or 54 cents, a year earlier.

Excluding items, profit was 43 cents per share. Analysts' average forecast was 40 cents, according to Reuters Estimates. Revenue fell 8 percent to $450.7 million, topping the average forecast of $428.9 million. Expenses rose 4 percent.

Moody's projected 2009 profit per share of $1.45 to $1.55, down from $1.87 in 2008, after previously forecasting profit toward the high end of a $1.40 to $1.50 range.

Analysts, though, expected $1.56. The results came a day after McGraw-Hill lowered its full-year outlook following a 23 percent decline in quarterly profit.

On a conference call, McDaniel said second-half issuance volume will decline in part because some companies accelerated debt sales when conditions allowed. He also said "we do not expect a significant ramp-up" in structured finance activity.

Chief Financial Officer Linda Huber added that 2009 bonus payouts may reach only 50 percent of normal targets and could rise by $40 million to $45 million in 2010 if results improve.

Investors and lawmakers have accused Moody's, McGraw-Hill Cos Inc's (MHP.N) Standard & Poor's and Fimalac SA's (LBCP.PA) Fitch Ratings, of fueling the credit crisis by awarding high ratings to risky mortgage debt that later collapsed.

McDaniel also said the Obama administration's credit rating reforms would likely have minimal if any impact on revenue.

The changes are intended to strengthen ratings quality and reduce potential conflicts of interest, but still allow issuers to pay agencies for ratings, creating an incentive to award high ratings to win more business.

Revenue at Moody's Investors Service fell 13 percent to $310.3 million. Moody's Analytics, whose services include consulting, risk management and the Moody's Economy.com business, had a 7 percent revenue increase, to $140.4 million.

Through Tuesday, Moody's shares had risen 37 percent this year, while McGraw-Hill shares were up 43 percent. (Reporting by Jonathan Stempel; editing by Lisa Von Ahn and John Wallace)