* Q2 EBITDA up 16.2 percent to 985 bln euros vs f'cast 1.2 bln
* Sees higher EBITDA this yr, previously saw flat
* CFO rules out larger M&A deals for now
* To rake in more than 2 bln eur in cash this year
* Shares gain 1.8 pct (Adds investment plans, shares, analyst comment)
FRANKFURT, July 26 (Reuters) - Germany's Covestro raised its profit guidance and bolstered its investment ambitions on Thursday, banking on stable demand for specialty materials even beyond the industry's current upswing.
The chemicals company predicted higher earnings before interest, taxes, depreciation and amortisation (EBITDA) this year, which it had previously seen as matching last year's 3.44 billion euros ($4 billion), though it gave no specific forecast.
Many chemical industry segments such as furniture and car seat foams have seen demand outgrow limited production capacity over recent quarters, causing a scramble to build new plants by the likes of DowDuPont, Saudi Aramco's Sadara joint venture, BASF and Wanhua.
The former Bayer subsidiary vowed to increase investment this year to between 650 and 700 million euros, up from 507 million in 2017, with further annual expenditure over the next three years to reach as much as 1.2 billion euros.
Among the trends Covestro is relying on is its plastics replacing metal parts in electric vehicles, as well as emerging middle classes in developing nations buying more furniture.
The shares gained 1.8 percent to 81.58 euros by 0750 GMT, outperforming a 1.1 percent increase in the STOXX Europe 600 chemicals index.
Finance chief Thomas Toepfer underscored the focus on internal growth projects, telling Reuters that possible takeover targets were in the smaller or "bolt-on" category, even though cash flow after investment expenditure would exceed 2 billion euros this year.
He added that investments were mainly earmarked for upgrades of existing chemical reactors, with a focus on specialised products with few competitors such as coatings for wind turbines or plastics for medical devices.
One new large plant in either transparent polycarbonate plastics or foam chemicals was on the cards, he added.
Second-quarter EBITDA rose 16.2 percent to 985 billion euros, broadly in line with the average forecast in a Reuters poll of analysts. ($1 = 0.8539 euros) (Editing by Maria Sheahan and David Holmes)