UPDATE 2-Fast Retailing sees record profit on Uniqlo boom

* Sees operating profit rising 10.5% to Y120 bln in 2009/10

* Posts 24% rise in year ended in August to record Y108.6 bln

* Uniqlo stands out in struggling retail sector

* Shares close down 2.2 pct ahead of earnings announcement (Adds analyst comment, background)

By Taiga Uranaka

TOKYO, Oct 8 (Reuters) - Japan's Fast Retailing (9983.T) forecast a 10.5 percent rise in operating profit this financial year as its Uniqlo casual clothing chain continues to draw cost-conscious consumers away from rivals.

While most of Japan's retail industry is still reeling from a a slump in consumer spending that shows little sign of abating amid rising job losses, Uniqlo has attracted customers with hit products such as underwear using heat-trapping fabric.

Seven & I Holdings, Japan's largest retailer, posted a sharp drop in its first-half earnings last week, while second-ranked Aeon Co Ltd (8267.T) fell into the red. [ID:nT176719] [ID:nT68K3OBS9]

Fast Retailing is looking to expand rapidly in China and other overseas markets, a move that will mean tougher competition for Gap Inc (GPS.N) of the United States, Spain's Inditex (ITX.MC) and Sweden's Hennes & Mauritz (HMb.ST).

"There's big potential still in China," said Credit Suisse retail analyst Dairo Murata.

Fast Retailing forecast a record operating profit of 120 billion yen ($1.36 billion) for the year to August 2010, in line with the average estimate of 119.4 billion yen in a poll of 18 analysts by Thomson Reuters I/B/E/S.

That would follow a 24 percent rise in operating profit to 108.6 billion yen for the past financial year, in line with its own forecast of 108 billion yen. Same-store sales at Uniqlo stores in Japan rose 11.3 percent during the period.

Shares in Fast Retailing, which runs about 780 Uniqlo stores in Japan and 80 overseas, rose 2 percent in the year to Wednesday, underperforming an 11 percent gain in the benchmark Nikkei average .N225.

The company, which also operates shoe stores and other chains, has said it will aim to lift sales to 5 trillion yen by the financial year to August 2020, more than 7 times its forecast for this year. ($1=88.36 Yen) (Editing by Michael Watson)