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UPDATE 1-Subaru Q2 profit disappoints, cuts annual forecast as US sales slow

* Subaru cuts full-year U.S. vehicle sales forecast

* Sees 10 bln yen costs related to improper final inspection

* Q2 profit 92.8 bln yen, vs 113.8 bln yen consensus (Adds details on profit forecast, U.S. sales)

TOKYO, Nov 6 (Reuters) - Japan's Subaru Corp on Monday reported a disappointing operating profit for the second quarter, and cut its full-year forecast as it expects to sell less cars in the United States, its biggest market, amid fierce competition.

Subaru has been outperforming its bigger Japanese rivals in the key North American market, but increased competition and higher selling incentives have begun to weigh on the automaker, which also lowered its vehicle sales forecast for the region.

Japan's No.6 automaker expects operating profit in the year to March to come in at 380 billion yen ($3.33 billion), versus a previous forecast of 410 billion yen and lower than last year's 410.8 billion yen

U.S. sales account for about 60 percent of Subaru's total global vehicle sales, and the automaker last year increased production capacity at its assembly plant in the country to keep up with increasing demand.

The maker of the Forester and Outback models said it sold around 159,000 vehicles in the United States in the quarter ended September, down 7.3 percent from a year ago. In Japan, its second biggest market, sales rose around 13.5 percent.

It now expects to sell around 668,000 vehicles in the United States in the year to March, lower than a prior forecast for around 687,700 units but a touch higher than the previous year.

Subaru posted a 13.2 percent drop in operating profit for the second quarter, as the company handed out more incentives to boost U.S. sales that clocked a slower pace of growth.

Its operating profit came in at 92.8 billion yen in July-September, versus 107.0 billion a year ago. This was lower than a mean forecast for 113.8 billion yen from nine analysts polled by Thomson Reuters I/B/E/S.

For the full year, Subaru expects a net profit of 207.0 billion yen, versus a previous forecast of 228.5 billion yen. It now expects the yen to trade around 111 yen to the U.S. dollar, weaker than a previous forecast for 110 yen.

The automaker said it was preparing for a negative impact of 10 billion yen for the year due to costs related to its improper final inspection procedures, which it expects will result in vehicle recalls in the domestic market.

Last month, Subaru said it had failed to follow proper procedures when doing final checks for vehicles made in Japan for the domestic market for around 30 years, following a similar discovery at rival Nissan Motor Co. ($1 = 114.2200 yen) (Reporting by Naomi Tajitsu; Editing by Himani Sarkar)