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UPDATE 1-Nissan Q2 profit disappoints, cuts annual view on Japan inspection costs

costs@

* Sees FY oper profit 645 bln yen vs pvs forecast for 685 bln yen

* Q2 oper profit drops 21.6 pct, versus expectations for a rise (Updates with results details)

YOKOHAMA, Japan, Nov 8 (Reuters) - Nissan Motor Co posted a surprise drop in quarterly profit, hurt by higher expenses in an increasingly competitive North American market, and lowered its annual forecast citing costs related to improper final inspection procedures in Japan.

The automaker had suspended domestic production of vehicles for the Japanese market for about three weeks after it revealed last month that it had found uncertified technicians had been carrying out final inspections of vehicles for decades. The scandal led to a recall of 1.2 million vehicles.

After accounting for expected costs related to this scandal, Nissan said it now sees operating profit coming in at 645 billion yen ($5.67 billion) for the year to March 2018, down from a previous forecast for 685 billion yen.

As of Wednesday, the automaker, Japan's second biggest, had resumed production of vehicles for the home market at all six of its domestic assembly plants.

For the second quarter, Nissan reported a 21.6 percent drop in operating profit. Specials costs related to a U.S. settlement over faulty Takata Corp air bag inflators also had a negative impact.

Its operating profit came in at 128.5 billion yen for the July-September period, down from 163.9 billion yen a year ago and below forecasts for an increase to 171.5 billion yen from eight analysts polled by Thomson Reuters I/B/E/S.

Vehicle sales in North America fell 3.3 percent in July-September to 502,000 units. In the United States, Nissan's biggest market, sales slid 2.2 percent to 377,000 units.

Competition continues to ramp up in the U.S. market, with automakers handing out incentives to attract buyers, especially for their sedans, amid a growing popularity of SUVs. This has raised marketing costs at Nissan and other carmakers.

In China, Nissan's No.2 market, sales rose 8.0 percent.

Nissan has led Japanese automakers in sales in the world's biggest auto market this year, having sold 1.17 million units in the first 10 months of the year.

The automaker's sales jumped 25.6 percent at home over the quarter. ($1 = 113.7700 yen) (Reporting by Naomi Tajitsu; Editing by Himani Sarkar)