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UPDATE 2-Hays sees Brexit impact fading, boost from AI

* Hays sees more stable UK recruitment market

* AI helping to make its business more profitable

* No sign of Brexit banking jobs exodus

* Hays vs PageGroup share performance: http://bit.ly/2vMfc7L (Recasts with comments from finance director)

Aug 31 (Reuters) - Hays forecast a modest return to growth in the British recruitment market this year as uncertainty after the Brexit vote eased and added that artificial intelligence was helping to boost its productivity.

Smaller firms, especially manufacturers in central and north west England, were behind an improvement in the British market, as they made short-term investments, Finance Director Paul Venables told Reuters.

Hays has faced challenges in its domestic market in the past year as Britain's vote to leave the European Union has shaken employer confidence, but the group has still outperformed its closed rival PageGroup, which analysts have in part attributed to better productivity.

Hays shares were up 2.4 percent at 176.9 pence at 1127 GMT, after it reported a 17 percent jump in operating profit to 211.5 million pounds for year ended June, moving past the 200 million mark for the first time since 2008.

Currency movements helped to boost operating profit by almost 29 million pounds.

As it generated more cash, Hays also announced a maiden special dividend of 4.25 pence per share and increased full-year dividend by 11 percent to 3.22 pence.

AI INVESTMENT

Venables said Hays had invested a "large amount" in new recruitment technology such as artifical intelligence (AI), which is beginning to change the market as it can analyze mountains of data across companies and the wider job market in short spans.

AI has already accelerated the short-listing process for Hays, enabling its consultants to focus on assessing the individual candidates outlined for "best fit," rather than poring over a wider pool of applicants.

"We've used a lot of these tools to supplement the skills of (our) consultants who can help you on the psychology of a candidate and the best cultural fit for them," Venables said.

Hays, which gets a quarter of its net fees from Britain, has partnered with the likes of Google, LinkedIn and SEEK in Australia and processes over 7 million CVs a year.

Venables said that technology had increased the amount of fees that its consultant gets by more than 7 percent over the last 5 years, adding almost 45 million pounds of profitability.

He said that in white collar recruiting, consultants would continue to play a crucial role as candidates sought out advice about high-profile positions.

Growth in the current year would be driven by strength in Europe, Venables said, adding that the British hiring market felt "very stable" versus a year ago.

London remained subdued, but was showing early signs of improvement as finance companies began to hire replacements for departing employees in investment and IT risk and compliance.

"The vast majority of the banks, certainly the ones we deal with, (the bulk) of their jobs are staying in London," he said. ($1 = 0.7743 pounds)

(Reporting by Esha Vaish in Bengaluru; Editing by Edmund Blair and Keith Weir)