* Second half profit, sales forecast misses estimates
* 2nd-qtr sales, profit hurt by weak China sales
* To restate 1st-qtr results
* China's potential not lost-CEO
* Shares fall 25 pct to 17-month low (Adds details from conference call, updates shares)
By Devika Krishna Kumar
Aug 6 (Reuters) - Nu Skin Enterprises Inc, a direct-seller of skincare and nutritional products, forecast sales for the second half of the year that fell well short of analysts' expectations as it struggles to overcome problems in China, its biggest market.
Nu Skin's shares slumped as much as 25 percent to a 17-month low of $43.50 after the company also reported a much steeper-than-expected fall in sales and profit for the second quarter ended June 30.
The company has had a rough year, starting in January when it was forced to suspend recruitment drives in China.
Two months later it was fined $540,000 by a Chinese regulator for illegal sales and misleading local consumers about the potential benefits of its products.
The company resumed recruitments in early May, but said it was not back to full strength in China. Greater China, which includes Taiwan and Hong Kong, accounts for more than a third of the company's total revenue.
Still, Chief Executive Truman Hunt struck a positive note.
"We haven't seen anything in China that leads us to believe that the market's potential is spoiled or lost," Hunt said on a conference call.
Short-sellers and activist investors have accused direct sellers such as Nu Skin, Herbalife Ltd and Usana Health Sciences Inc of running pyramid schemes, where members make more money recruiting new members than through sales.
About 3.9 percent of Nu Skin's stock was held by short sellers as of July 15, according to Nasdaq data, much lower than the 6.1 percent as of the end of January when the company's problems in China surfaced.
Up to Tuesday's close, Nu Skin's shares had slumped 58 percent this year.
Nu Skin said first-quarter profit would be reduced by $9.4 million after a restatement to include charges of $28 million related to a tax rebate in China and inflation in Venezuela.
The company, which introduces new products using limited-time offers, said the response to such offers in China was lighter than expected in June, but picked up in July.
Nu Skin's sales in Greater China fell 12 percent in the second quarter ended June. Total revenue fell 3 percent to $650 million, missing the average analyst average estimate.
The company's forecast for the second half of the year implied a revenue decline of 34 percent at the midpoint, JPMorgan analysts said in a note.
That was much steeper than the 11 percent decline Wall Street was expecting and the brokerage's recently revised estimate of a 25 percent fall.
Nu Skin's profit forecast for the third and fourth quarters was also well short the average analyst estimate.
Profit plunged 73 percent in second quarter, hurt by a 40 percent jump in costs. Excluding items, the company earned $1.13 per share, well short of the average estimate of $1.27. (Editing by Saumyadeb Chakrabarty and Savio D'Souza)