UPDATE 4-Moody's profit beats Street view; shares rise

* Q2 EPS ex-items 49 cents vs Street view 44 cents

* Revenue up 6 pct to $477.8 million

* Shares up 5.7 percent (Adds shares, background on debt issuance, regulation)

By Elinor Comlay

NEW YORK, July 29 (Reuters) - Moody's Corp (MCO.N) posted better-than-expected second-quarter profit as demand for debt ratings picked up, and its shares rose 5.7 percent.

The rating agency was cautious about the outlook for its business, which faces a tough second half as debt issuance slows and costs associated with new financial regulation increase.

But Moody's reported a bigger jump in revenue from ratings than its main rival, McGraw-Hill Cos' (MHP.N) Standard & Poor's, in part because of strong demand for loan ratings.

Both Moody's and Standard & Poor's struggled as debt issuance slumped at the height of the financial crisis. But in recent quarters a pickup in issuance has revived their business.

Regulatory changes now threaten to cut into their businesses. Under sweeping financial reform signed into law by U.S. President Barack Obama this month, ratings agencies can be sued if they "recklessly" fail to review information in developing a rating.

Moody's posted second-quarter revenue of $477.8 million, down from the first quarter but up 6 percent from a year earlier.

Earnings rose to $121 million, or 51 cents a share, from $109.3 million, or 46 cents a share.

Excluding a benefit of 2 cents a share related to legacy tax matters and a restructuring adjustment, the company earned 49 cents a share, 5 cents above analysts' average forecast, according to Thomson Reuters I/B/E/S.

Moody's shares were up $1.29 at $23.93 in morning trading but were still down 10 percent for the year to date. McGraw-Hill shares were up 2 percent Thursday but were down almost 8 percent for the year.

CAUTIOUS OUTLOOK

McGraw-Hill shares fell when it reported results last week, after it said full-year earnings would likely be at the low end of its previous forecast. Like Moody's, McGraw-Hill reported a higher-second quarter profit, but it said it expected a decline in debt issuance as well as lower sales of its textbooks in the second half of the year.

Moody's Chief Executive Raymond McDaniel said the company still expects to earn $1.75 to $1.85 per share for the full year, but he added: "We expect that uneven credit market conditions will persist during the second half."

U.S. investment-grade corporate bond issuance fell to $113.1 billion in the second quarter from $218.3 billion in the first quarter, according to Thomson Reuters data.

Debt issuance in the second quarter slowed as investors fretted over European sovereign debt.

Moody's said its expenses increased 9 percent to $287.3 million in the second quarter, in part due to higher spending to meet legal and regulatory requirements. (Reporting by Elinor Comlay; Editing by Maureen Bavdek and John Wallace)