UPDATE 1-Challenger Financial H1 profit slips 5 pct

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SYDNEY, Feb 25 (Reuters) - Challenger Financial Services Group Ltd (CGF.AX), an Australian asset and mortgage manager, said on Monday first-half profit dipped 5 percent due to interest costs following an acquisition. Challenger, in which the family of Australian tycoon James Packer owns a 20 percent stake, reported net profit of A$96 million ($89 million) for the six months ended December.

Three analysts surveyed by Reuters had forecast Challenger's net profit at A$105 million. Challenger shares are down 47 percent in 2008 so far, compared with a 12 percent drop in the benchmark S&P/ASX 200 index .AXJO.

Challenger, a non-bank lender, depends on the securitisation market for its funding needs. But a global credit crisis, sparked by a meltdown in the U.S. subprime mortgage market, has pushed up the funding costs for all borrowers and in some cases virtually shut the short-term loan markets.

That has put pressure on companies such as Challenger and listed rivals such as RHG Ltd (RHG.AX).

Challenger said mortgage business volumes have currently reduced until funding markets reopen.

Challenger's Chief Executive Mike Tilley said in a statement the company would continue to focus on growing its recurring income stream. Challenger's fee income, which comprises of 71 percent of total imcome, rose 25 percent.

Challenger, whose assets under management rose 22 percent to A$47.3 billion, said the market turmoil has produced significant number of investment opportunities.

In August, Mitsubishi UFJ Financial Group Ltd (8306.T), Japan's largest bank, agreed to buy a $172 million stake in Challenger. ($1=A$1.08) (Reporting by Denny Thomas)