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UPDATE 2-Allianz's profit beats forecasts despite problems at Pimco

* Investors withdraw more than 20 bln euros from Pimco

* Q2 net profit 1.76 bln eur vs Rtrs poll avg 1.55 bln

* Eyes FY op profit at top of 9.5-10.5 bln eur range

* Shares edge higher as insurance sector falls

(Adds shares, analyst quote, background, details)

FRANKFURT, Aug 8 (Reuters) - Problems at Allianz's U.S. investment firm Pimco persisted in the second quarter as clients defected and efficiency declined, posing a challenge to Europe's largest insurer evem though it remains on track for a record group profit in 2014.

Allianz said on Friday investors withdrew more than 20 billion euros ($26.8 billion) from Pimco in the second quarter, casting a shadow over results at its insurance divisions that beat even the highest of analysts' forecasts.

Group operating profits of 2.8 billion euros in the quarter take Allianz more than halfway towards its goal of earning 10 billion euros, plus or minus 500 million, in the full year.

"We expect the upper end of the target range to be in reach," Allianz's chief executive Michael Diekmann said in a statement.

But the performance at Pimco continued to worry, posing a challenge to Diekmann, who oversaw a restructuring of Pimco's leadership structure earlier this year.

Investors have been withdrawing money from Pimco's flagship Total Return Fund, the world's largest bond fund, due to a weakening performance and to position themselves for a rise in interest rates in the United States.

Pimco founder Bill Gross's public falling-out with former heir-apparent Mohamed El-Erian, who shared the co-chief investment officer title, also added to unease amongst investors.

The Total Return Fund, which is managaed by Gross, posted its 15th straight month of investor withdrawals in July, despite an improving performance.

However, Allianz, said on Friday the pace of investor outflows at Pimco had slowed.

"The key for future results is the investment performance, which is at a very high level," Allianz's chief financial officer Dieter Wemmer said in a statement.

INSURANCE ENGINE

Operating profit at the group's asset management division, which includes Pimco as well as smaller asset manager Allianz Global Investors, fell by 16 percent to 675 million euros and was the only division to suffer in the quarter.

However, Allianz shares were still up slightly at 121.45 euros by 0750 GMT, when the Stoxx Europe 600 insurance sector index was down 1.2 percent in an overall weaker market.

"In a better market environment, ALV shares would be up significantly," said Alpha Wertpapierhandel in a client note.

Allianz's previous record was an operating profit of 10.1 billion euros in 2007, excluding its Dresdner Bank unit, which it sold.

For the second quarter Allianz also posted a 10.5 percent rise in net profit to 1.76 billion euros topping the highest forecast of 1.66 billion euros given in a Reuters poll of analysts. (1 US dollar = 0.7466 euro)

(Editing by Thomas Atkins and Greg Mahlich)