UPDATE 2-IG Group hit by rise in bad debt, shares slump

* Sees H1 revenues up 45 percent

* H1 bad debts hit 15 mln pounds

* Shares slump 25 percent

(Adds analyst reaction, shares, CEO comment, background)

By Myles Neligan

LONDON, Nov 20 (Reuters) - British spread betting firm IG Group (IGG.L) said on Thursday its half-year profit is set to fall short of analysts' expectations because of a surge in bad debts, sending its shares 25 percent lower.

IG said it expects bad debts of 15 million pounds ($22.60 million) for the six months to Nov. 30, after some customers' bets went wrong during extremely volatile financial market conditions in October.

That will partly offset a surge in revenues, which rose 45 percent to 125 million pounds as more customers sought to profit from sharp share price fluctuations, leaving profit 21 percent up on the year at 58 million pounds.

By 1110 GMT, IG shares were down 25 percent at 170 pence, making them the biggest faller in the FTSE 250 index.

"For the full year, things should be OK. But the problem is that in these markets, when companies like this disappoint, their shares get hammered," said Oriel Securities analyst Keith Baird, who reckons his full-year profit forecast for IG is now 5 percent too high.

"Bad debts are worrying, but should be exceptional in nature," Investec analyst Daniel Havercroft, who had predicted first-half profit of 61 million pounds, wrote in a note to clients.

IG's bad debts for the first half are equivalent to 12 percent of revenues, compared with 2.2 percent in the whole of the previous financial year.

IG Chief Executive Tim Howkins said the bad debts reflected "extraordinarily volatile" financial markets in October, when British share prices fell sharply after the UK government was forced to rescue three of the country's biggest banks.

"I'd characterise the period as 5 good months and one extraordinary month," he told analysts on a conference call.

IG said it had taken steps to prevent a similar spike in bad debts in future, adding it would "vigorously" pursue all outstanding sums. (Reporting by Myles Neligan; editing by Simon Jessop)