UPDATE 2-Sales incentives in slowing U.S. auto market dent Nissan's profits

* Nissan Q1 operating profit 153.3 bln yen, down 12.8 pct y/y

* Reports higher global vehicle sales, but selling costs bite

* Vehicle sales rose 5.3 percent y/y in China in first quarter

* Reiterates operating profit f'cast at 685 bln yen for year (Adds executive comment, adds details, recasts throughout)

YOKOHAMA, July 27 (Reuters) - Nissan Motor Co said higher incentives to expand sales in the slowing U.S. auto market was increasingly dragging down its bottom line, after earlier reporting a slump in profit to below consensus estimates for the first quarter.

Japan's No.2 automaker reiterated its forecast for an almost 8 percent drop in profit to 685 billion yen ($6.15 billion) for the year to March 2018, indicating it was bracing for a possible downturn in the U.S. auto market, the biggest for Nissan and many of its compatriots, following years of strong sales.

"The hurdle is getting higher to sell cars in the United States, and it's having an impact on our results," Nissan Corporate Vice President Joji Tagawa said on Thursday.

The company has been increasing sales incentives to attract buyers, he told reporters at a briefing, amid rising competition for a share of the world's second-biggest auto market after China. While this has helped boost Nissan's portion of the pie, it has come at a significant cost - a dent to its profits.

Earlier in the day, the automaker reported an operating profit of 153.3 billion yen ($1.38 billion) for the April-June quarter, versus 175.83 billion yen a year ago and an average analysts' estimate for 171.45 billion.

Higher marketing and selling expenses, including incentives and discounts, had a negative impact of 50.8 billion yen, while a rise in raw material costs also stung.

According to industry experts, spending on incentives accounts for about 15 percent of Nissan's average U.S. vehicle sale price, more than around 12-13 percent by U.S. automakers.

A 36 percent tumble in operating profit from North American operations, versus a 40 percent surge in its domestic business, dealt the hardest blow to Nissan's earnings in the quarter.

The automaker said it expects the competition for U.S. market share to get more intense given forecasts annual auto sales in the country may drop to around 16 million this year, from a record high of about 17.5 million vehicles in 2016.


Nissan's U.S. sales edged up 1.2 percent due to demand for its SUV crossover model Rogue, which was the best selling non-pickup truck in the country during the first half of 2017.

The company - which saw its U.S. market share grow to 9.7 percent in June from 9.2 percent a year ago, according to Autodata - is one of the few that have been able to boost sales over January-June in the country, defying a trend of an overall drop in car sales.

The brightest spot for Nissan, however, was sales at home that recovered from a slump a year ago, when it temporarily stopped selling its minivehicle models manufactured on contract by Mitsubishi Motors Corp after the latter admitted to overstating their fuel economy.

Nissan's global retail sales rose 5 percent to 1.35 million units in the first quarter, led by a 45.6 percent jump in domestic sales. It retained its forecast for global retail vehicle sales at 5.83 million for the year, up 3.6 percent.

Combined sales with automaking alliance partner Renault and Mitsubishi, in which Nissan took a controlling stake after the mileage-cheating scandal came to light, will reach roughly 10 million, making the group one of the world's top-selling automakers.

Nissan shares ended up more than 1 percent before the earnings announcement, versus the broader market that was up a slight 0.2 percent. ($1 = 111.3600 yen) (Reporting by Naomi Tajitsu; Editing by Himani Sarkar)