PREVIEW-Taiwan's Cathay Fin faces Q1 loss, outlook brighter

* What: Cathay Financial Q1 results

* When: Thursday, after the stock market close

* Likely to post a loss on U.S. subprime investments, stronger Taiwan dollar; 2008 outlook solid on closer Taiwan-China ties

By Faith Hung

TAIPEI (Reuters) - Cathay Financial (2882.TW: Quote, Profile, Research, Stock Buzz), Taiwan's top financial holding firm, is expected to post its worst quarterly loss in two years as it takes a double hit from stronger Taiwan dollar and the U.S. subprime debt meltdown.

But Cathay's prospects for the rest of the year look more solid on hopes that the Chinese market could become a major earnings driver if ties between Taiwan and China improve.

In the shorter term, Cathay could also profit from its investments in Taiwan stocks, which have been Asia's best performers this year.

Cathay and smaller rivals have posted losses recently due to higher provisions stemming from their investments in securities hit by the U.S. subprime mortgage meltdown and ensuing global credit squeeze. A surge in foreign currency hedging costs against their overseas investments has also eaten into profits.

Shin Kong Financial (2888.TW: Quote, Profile, Research, Stock Buzz), Fubon Financial (2881.TW: Quote, Profile, Research, Stock Buzz) and Mega Financial (2886.TW: Quote, Profile, Research, Stock Buzz) have struggled with similar problems.