UPDATE 1-Incitec Pivot lowers year outlook, H1 beats f'cast

* Year profit could be 16 pct lower than earlier flagged

* First-half tops analysts' forecasts

* Slashes dividend, but confident on balance sheet

* Shares up nearly 5 percent

MELBOURNE, May 11 (Reuters) - Incitec Pivot Ltd (IPL.AX), Australia's top fertiliser maker, warned its profit could tumble 42 percent this year if fertiliser prices hold where they are, but also soothed concerns it would need to raise fresh equity helping its shares to gain.

Responding to tough market conditions, the group slashed its dividend and closed another manufacturing plant to shore itself up.

It reported a flat first-half profit, well above market forecasts, as its takeover of explosives group Dyno Nobel offset a drop in fertiliser prices and volumes.

Incitec said its balance sheet was strong, easing fears it would need to raise new equity just six months after raising A$1.17 billion ($884 million) in a deeply discounted share sale.

"We exited the half with the balance sheet in extremely good shape," acting chief executive James Fazzino said, adding that the group had plenty of headroom with A$600 million in undrawn facilities.

"And that will put to rest any rumours around equity raisings," he told reporters.

The company, the world's second-largest maker of explosives for mines behind former parent Orica Ltd (ORI.AX), said it expected fertiliser prices and demand for explosives to be flat for the rest of the year to September.

"We still think the external environment will remain very challenging for us for the immediate period," Fazzino said, adding that conditions were the most challenging he had seen in 20 years in the chemicals industry.

If diammonia phosphate (DAP) fertiliser prices hold at $310 a tonne, urea at $250 a tonne and the Australian dollar stays at 75 U.S. cents, full-year profit would slide to A$380 million for the year to September, the company said, down from A$653 million a year earlier and compared with an earlier forecast of A$450 million.

The weaker outlook matches the bottom end of the range of analysts' recently downgraded forecasts.

Net profit before one-offs slipped to A$169.8 million ($128.3 million) for the six months to March from A$171.1 million a year ago, compared with a consensus forecast of A$149 million.

Net profit after items fell 41 percent to A$99.6 million, due to restructuring charges in the Dyno Nobel business and the collapse of the phosphate market.