UPDATE 2-BASF sees Libyan oil underpinning profit
* Chemicals business profit likely to fall
* Resumption of oil production in Libya to drive 2012 profit
* Says Chinese growth engine has started to stall
* Q2 adj EBIT 2.5 bln euros vs 2.3 bln euro forecast (Adds CEO and analyst quite, share price)
FRANKFURT, July 26 (Reuters) - BASF stuck to its outlook of higher operating earnings this year, predicting that the resumption of its oil production in Libya would help to offset a likely decline in profit at its core chemicals business.
The world's largest chemicals maker by sales, whose products range from catalytic converters and car coatings to insulation foams, said it was suffering as a result of a slowdown in China, its main growth market, and a slight decline in sales and volumes in debt-laden Europe.
"Our forecast is especially supported by the resumption of our crude oil production in Libya. It is unlikely that the earnings from our chemicals business will match the level of the previous year," Chief Executive Kurt Bock told Reuters.
"The uncertainties have increased quite dramatically over the last couple of months," Bock told Reuters Insider TV, adding the biggest surprise has been the weakness in the Chinese market.
In response, the company is slowing hiring in China and has cut inventory levels to shore up cash flow. It is also speeding up cost-cutting across the group, but will continue to invest in Asia as planned because long-term growth projections remain intact, Bock said.
Asia, which accounted for almost 20 percent of BASF sales last year, has proved a headache for other global players.
Brazil's Vale, the world's largest producer of iron ore, on Wednesday cited China's economic slowdown as second-quarter profit tumbled. Engineering conglomerate Siemens on Thursday said major orders from China were becoming rare.
BASF shares were 1.2 percent lower at 55.49 euros at 0925 GMT, underperforming the STOXX Europe 600 Chemicals Index's 0.2 percent decline.
"We remain cautious due to industry sentiment remaining negative and volatile, and the resulting expectation of cautious management guidance for the back half of the year," Bernstein Research analysts said in a note to investors.
Before last year's armed conflict in Libya, BASF's oil and gas unit was the second-largest foreign oil company in the North African country after Italy's ENI.
After some setbacks in ramping up production there in the first quarter, BASF managed to continuously produce crude oil in Libya throughout the second quarter, it said.
Output is now at 80,000 barrels per day, and only bottlenecks in the country's pipeline infrastructure are keeping BASF from churning out its maximum capacity of 100,000 barrels.
The group also said it still expected group sales to rise this year even as sales volumes in most of its chemicals and plastics businesses declined in the second quarter.
BASF's earnings before interest and tax (EBIT), adjusted for one-off items, rose by more than 11 percent to 2.5 billion euros ($3.03 billion), surpassing the 2.3 billion euro average estimate in a Reuters poll of analysts.
U.S. peer DuPont said this week it expected 2012 earnings to come in at the bottom of its prior forecast range, due in part to economic uncertainty around the globe.
($1 = 0.8248 euros) (Reporting by Ludwig Burger; Editing by Erica Billingham)
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