UPDATE 1-Kia Q2 profit at 5-½ yr high; outlook bright

* Kia Q2 net/operating profit highest since Q4 2003

* Outlook bright on growing small car appetite

* Shares decline on profit-taking (Adds details, analysts)

By Cheon Jong-woo

SEOUL, Aug 12 (Reuters) - Kia Motors Corp (000270.KS), South Korea's No.2 carmaker, on Wednesday posted its biggest profit in 5-½ years on a weaker won and new model launches, with growing appetite for small cars brightening its outlook further.

Kia, which is part of world No.5 automaker Hyundai Motor Group along with Hyundai Motor Co (005380.KS), was expected to benefit from a stronger appetite for smaller cars, although the benefits from a weaker won currency and government stimulus measures were fading, analysts said.

"Both the Forte and Soul models have no big competitors in their segments, given their price and quality, and they will attract many drivers abroad," said Kevin Lee, an auto analyst at Goodmorning Shinhan Securities, referring to two of Kia's compact models.

Echoing the outlook, company officials said Kia aimed to lift sales to 1.47 million vehicles this year on a wholesale basis from 1.40 million units in 2008.

Earlier, James Lee, chief financial officer said Kia aimed to sell about 1.5 million units this year.

Kia's full-year net profit is expected to more than triple to 361.3 billion won ($290.7 million) from 113.8 billion won in 2008, according to a Reuters' Estimates poll of 21 brokerages.

Reflecting the optimism, Kia shares have more than doubled so far this year, outperforming the 40 percent rise by the broader stock market .KS11.

The maker of the Morning minicar reported a net profit of 347.1 billion won for the second quarter, the highest since the fourth quarter of 2003 and ahead of a 159.0 billion won forecast by 10 analysts in a Reuters poll.

That compared with a 86.0 billion won profit a year earlier and a 97.4 billion won profit in the first quarter.

Despite the healthy results and outlook, Kia's shares were down 3.63 percent at 15,950 won as of 0230 GMT, compared with a 1.38 percent decline by the benchmark KOSPI.

"Investors are booking profit as the most bullish factors have been priced in and the second quarter may be a peak. Still, the fall may provide an opportunity to buy the shares on dips as Kia is expected to outperform rivals," said Michael Sohn, an analyst at Woori Investment & Securities.

Kia posted a 330.3 billion operating profit during the quarter ended on June 30, also the highest since the fourth quarter of 2003 and above a forecast for 191.6 billion won profit in the poll.

This compared with a 117.0 billion won profit a year earlier and a 88.9 billion won profit in the previous three months.

The won KRW= rose 10.3 percent against the dollar in the second quarter but was down 20.8 percent from a year earlier, according to Reuters calculations.

Kia's second-quarter sales rose 11.5 percent to 4.68 trillion won from a year earlier, helped by government measures such as tax incentives and easier consumer financing.

The measures and the weaker won helped Hyundai report a record high second-quarter net profit last month. [ID:nSEO263486] ($1=1242.7 Won) (Editing by Jonathan Hopfner and Chris Lewis)