* Cuts FY net forecast to 320 bln yen from pvs 400 bln yen
* Q2 net profit up 7.7 pct at 106 bln yen
* Nissan most exposed to China among Japan carmakers
* Nissan shares close down 2 pct ahead of Q2 earnings
YOKOHAMA, Japan, Nov 6 (Reuters) - Counting the cost of anti-Japanese protests in a territorial dispute with China, Nissan Motor Co cut its full-year net profit forecast by a fifth to $3.99 billion, and said it had lost share in its biggest market.
Nissan joins Honda Motor in revising down its forecasts for the year - Honda also lopped a fifth off its guidance - but bigger rival Toyota Motor on Monday nudged up its forecast as it is less exposed to a China market where growth is slowing and Japanese goods have been boycotted.
Demand for Nissan, Honda and Toyota cars in China, the world's biggest auto market, was virtually halved due to the protests in September and October sparked by a row over disputed islets in the East China Sea. Nissan is the most exposed of the three to China, where it has 27 percent of its vehicle sales.
July-September net profit rose 7.7 percent to 106 billion yen ($1.32 billion), Nissan said on Tuesday, despite lower than expected car sales in the United States and Europe. That was well ahead of an average estimate for 91.4 billion yen by seven analysts polled by Thomson Reuters I/B/E/S. The full impact of the China damage will come through in the current second half.
The company said that over the first half of its financial year, a stronger yen against Russian and Brazilian currencies, and higher selling costs, ate into operating profit.
The new full-year net profit forecast of 320 billion yen is some way below an estimate of 360 billion yen by Thomson Reuters StarMine's SmartEstimate, which places greater emphasis on timely forecasts by top-rated analysts.
``Given the share price performance, I suspect a lot of the bad news is priced in already,'' said Christopher Richter, senior analyst at CLSA Asia-Pacific markets in Tokyo. ``The one silver lining, their first-half dividend - which they hiked 25 percent - maybe that's something that will make the market feel a little better when it comes to looking at the reduced earnings.''
Nissan and its China joint venture with Dongfeng Automobile Group sold 64,300 vehicles in China in October, down 41 percent from a year earlier. January-October sales slipped 0.4 percent to 1.01 million vehicles.
The company trimmed its 2012 China sales forecast to 1.175 million vehicles from a previous 1.35 million. Globally, it said it now expects to sell 5.08 million vehicles in the year to end-March, down from a previous estimate for 5.35 million.
Nissan's Chief Operating Officer Toshiyuki Shiga told reporters that the cut in the firm's full-year operating profit forecast - to 575 billion yen from 700 billion yen - took into account a 60 billion yen hit from falling sales in China.
``We are gradually seeing signs of recovery (in China). Customers are gradually coming back to dealerships,'' Shiga said, adding that Nissan's China market share dipped to 6.3 percent in July-September from 7.5 percent in January-June.
He said visitors to the company's China dealerships were back to around 80 percent of pre-dispute levels, and orders were running at about 70 percent.
Earlier, BMW, the world's largest premium carmaker, beat expectations with its quarterly profits, driven in part by rampant demand in China.
In the United States, Nissan's second-biggest market - and one that has proved too much for Japan's 4th-largest car maker Suzuki Motor Corp - the automaker faced production delays around July for its top-selling Altima mid-sized sedan, which faces intense competition in a crowded mid-size family sedan market from Toyota's Camry, the Honda Accord, Ford's Fusion, and models from GM, Hyundai Motor and Volkswagen.
Nissan's U.S. sales skidded 3.2 percent in October from a year ago, to 79,685 vehicles.
Shiga said Nissan trimmed its U.S. sales forecast for the year to March to 1.175 million vehicles from a previous forecast of 1.2 million, due to a local supply crunch.
Nissan, 43.4 percent-held by Renault SA, is one of the frontrunners in the auto industry's push into electric cars, but Nissan has sold only 42,700 of its Leaf EV since its launch almost two years ago, underperforming initial expectations as drivers have been put off by the short distances EVs can run without re-charging the battery. With the air conditioner on, the Leaf can run for about 120 km (75 miles).
``We are gradually grasping why customers are hestitant to buy EVs, what troubles them after their purchase, or what makes them happy. We are coming up with measures,'' Shiga said.
Seeking to grow in emerging markets - where some analysts have criticised its late entry - Nissan last week said it would spend $358 million to build a second assembly plant in Thailand, due to open in mid-2014 with annual capacity of 75,000 vehicles, later rising to 150,000. Nissan's existing Thai plant can produce 220,000 cars and pickup trucks a year.
Japanese investment has surged into Southeast Asia on hopes for sustained growth in the region and as China's appeal is undermined by rising wage costs and spiking tensions over the territorial disputes.
Shares in Nissan, valued at close to $39 billion, have slipped 2 percent so far this year, trailing Toyota's 26 percent gain and Honda's 3 percent rise. Nissan shares, which last month touched a 13-month low, closed down 2 percent on Tuesday ahead of the earnings.