UPDATE 1-Australia's ASX profit growth slim in tough market

* ASX H1 underlying profit A$180.7 mln v A$183 mln consensus

* Dividend up 2.9 pct to 92.8 cents

* Sees investor sentiment possibly turning later in 2012

SYDNEY, Feb 16 (Reuters) - Australia's ASX Ltd , operator of Asia's fourth-largest bourse, reported a 2.9 percent rise in half-year profits on Thursday and said it expected market conditions to remain challenging with rival Chi-X's arrival in the market.

Sharp market volatility slammed trading revenue in the December quarter, but ASX said average daily cash market activity in the first two weeks of February jumped nearly a quarter to A$4.8 billion against the first six weeks of the year.

"If a solution to the European crisis is found that gives capital markets confidence, we could see investor sentiment turn positive later in the year," ASX Chief Executive Elmer Funke Kupper said in a statement.

ASX late last year lost its more-than-two-decade-old monopoly of the Australian market as Chi-X, part of Nomura controlled Chi-X Global, launched on Oct 31. Traders predicted a fee war due to the launch.

Chi-X was among the first entrants in places such as Europe, Canada and Japan when competition was introduced, shaking up established players as new platforms armed with fast trading technology and smaller overheads slashed fees.

ASX said underlying profit after tax rose to A$180.7 million ($193.7 million) in the half-year to December 31 from A$175.5 million last year, slightly below a consensus forecast of A$183 million, according to Thomson Reuters I/B/E/S.

Chi-X is yet to make a dent in ASX's volumes, though participants expect it to corner 15 percent of the market in six months as they gain confidence over its reliability.

ASX has a daily turnover of around A$5 billion with Chi-X logging just 1 percent of that, or A$40-50 million per day.

In order to defend its market lead, ASX announced a new platform late last year targeting high-frequency trading.

Australia's stock market is the world's eighth largest with a combined capitalisation of about $1.3 trillion.

Asia's third-largest listed bourse, Singapore Exchange Ltd , last month reported its lowest profit since March 2009, as weakness in global markets hurt its core securities business, and the bourse operator gave a cautious outlook. ($1 = 0.9329 Australian dollars) (Reporting by Amy Pyett and Sonali Paul; Editing by Muralikumar Anantharaman and Lincoln Feast)