UPDATE 2-Australia's QBE H1 fcast disappoints, shares fall

* Profit forecast misses estimates, shares slump 6.5 pct

* Insurance margin seen at 15.7 pct, below forecasts

* To report earnings in U.S. dollars

* Investors expected a faster turnaround: fund manager (Adds fund manager comment)

By Narayanan Somasundaram

SYDNEY, July 26 (Reuters) - QBE Insurance (QBE.AX), Australia's top insurer by premium, on Monday flagged a 40 percent fall in first-half net profit on equity losses and a lack of one-off gains, disappointing investors who knocked its shares down 6.5 percent.

QBE, which has made more than 75 acquisitions in 10 years to spread to 48 countries, said equity losses more than doubled to $228 million, while the year-ago period had one-off gains of about $220 million.

Analysts on average were expecting a 35 percent fall in net profits from the A$1.02 billion reported last year and the downbeat outlook sent the stock to its lowest since March 2009.

The shares recovered slightly to A$17.06 at 0235 GMT, but were still down 5.1 percent in a broader market up 0.75 percent .AXJO.

QBE's woes are not different from its global peers, which are facing weak stock markets and lower bond yields. Last month, smaller rival Insurance Australia Group (IAG.AX) cut its 2010 forecast for the third time in as many months. [ID:nSGE6500KP].

"It seems like investors predicted a turnaround sooner," Angus Gluskie, chief investment officer at White Funds Management said.

"QBE is at a soft point in the insurance cycle. But all ingredients are in place for a turnaround in the coming years."

Fund managers said analysts would adjust their short-term forecast after QBE's warning but expected them to leave the 2011 and 2012 forecast largely unchanged.

"The continued excellent underwriting results have been more than offset by significantly lower investment income from reduced interest yields, the fall in equity markets ...," QBE Chief Executive Frank O'Halloran said in a statement.

The MSCI's world equity index .MIWD00000PUS has lost more than 10 percent since April and is down more than 7 percent in the first six months of 2010. The global index recorded its worst quarter since the final three months of 2008 when U.S. bank Lehman Brothers collapsed.

STILL HOPEFUL FOR 2010

QBE said it expected its insurance profit margin for the first half to be 15.7 percent, below its 16-18 percent forecast range, hit by lower yields and record levels of catastrophes in the first half.

However, O'Halloran said he still expected to end the year in the target range. The insurer also said it expected to maintain its interim dividend of A$0.62.

The insurer, which decided to present its earnings in U.S. dollars as overseas operations make up 75 percent of business and half the annual premium is written in U.S. dollars, said gross written premium should expand by a fifth to $6.9 billion.

Acquisitions and other initiatives for 2010 to date are set to add around $400 million of net profit and about $2.3 billion of new gross written premium annually by 2013, it said.

QBE is scheduled to report half year earnings on Aug 19. (Reporting by Narayanan Somasundaram; Editing by Ed Davies and Dhara Ranasinghe)