UPDATE 1-Legg Mason profit up with first net inflows since 2007

* Profit 60 cents/share vs Street view 55 cents

* Assets under management $650.7 bln vs year-ago $631.8 bln

* Net inflows of client funds $200 mln

Oct 26 (Reuters) - Asset manager Legg Mason Inc said on Friday quarterly profit soared more than 42 percent, topping expectations, as the company reported its first quarterly net inflows of client funds since 2007.

For the fiscal second quarter ended Sept. 30, Baltimore-based Legg Mason reported net income of $80.8 million, or 60 cents per share, compared with $56.7 million, or 39 cents per share, a year earlier.

Analysts, on average, expected 55 cents per share, according to Thomson Reuters I/B/E/S.

Assets under management stood at $650.7 billion at Sept. 30, up from $631.8 billion at June 30, driven by market appreciation of $20.7 billion and net inflows of $200 million of client funds, Legg Mason said.

Clients added a net $9.7 billion to money market funds, offset by outflows of $5.7 billion from equity funds and $3.8 billion from bond funds.

The net inflows could relieve some pressure on Legg Mason, coming at a time of strategic tension. Mark Fetting stepped down as chief executive earlier this month.

Unlike some peers, Legg Mason shares have not recovered from the financial crisis, and client withdrawals have continued amid performance troubles. Since taking the helm in 2008, Fetting had bought time with deep cost-cutting and debt restructuring.

Unresolved tensions between the parent company and some of its investment affiliates on issues like sales costs helped lead to Fetting's departure.

But these issues remain, and in selecting its next CEO, the Legg Mason board must decide whether to seek more growth or make changes like spinning off investment units, as some private-equity specialists have suggested.

With Fetting gone, Legg Mason's interim CEO is its sales chief, Joseph Sullivan. The company has hired recruiting firm Korn/Ferry International to run its search for a new CEO.