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RPT-UPDATE 2-Honda forecasts flat profit this year as quality fixes weigh

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By Chang-Ran Kim

TOKYO, April 28 (Reuters) - Honda Motor Co forecast on Tuesday a scant 0.4 percent rise in net profit for the year that began on April 1, saying higher quality-related costs and currency losses would offset gains from vehicle sales growth.

The forecasts look especially weak after Japan's No.3 automaker reported earnings that fell far short of its guidance in the just-ended year, when quality problems delayed vehicle development, pushed up costs and hampered sales.

Last year's profit shortfall was due about half to quality-related costs and half to weaker sales in the United States and Japan, Honda Executive Vice President Tetsuo Iwamura told a briefing for reporters.

Honda's sales have suffered in the United States, its biggest market, due to an ageing product line-up and as cheaper fuel shifts demand towards large SUVs and pickup trucks and away from the passenger car segment where it is strongest. In March, Honda's share of the U.S. market fell to 8.2 percent compared with 9.3 percent for all of 2014.

"This is not good ... But we intend to recover with new models from the latter half of this business year," Iwamura said, pointing to remodelled versions of the Pilot, Civic, CR-V, Odyssey and HR-V coming through the pipeline.

Honda will aim to boost sales while keeping profit-eroding incentives around $1,500 per car, he said. Some Detroit automakers are spending more than double that.

Honda projected a net profit of 525 billion yen ($4.41 billion) for the year through next March, based on U.S. accounting standards that it used until the just-ended financial year, as well as under international financial reporting standards (IFRS) adopted this year.

Exchange rates will work against it, it said, assuming a dollar rate of 115 yen and a euro of 125 yen.

For the January-March fourth quarter, net profit dropped 43 percent to 97.8 billion yen, far short of an estimated 121.65 billion yen according to Thomson Reuters StarMine's SmartEstimate.

Iwamura said a labour dispute at ports in the U.S. West Coast and slower-than-expected production at a new factory in Mexico, to ensure quality, also hurt Honda's U.S. sales in the latest quarter.

Honda delayed new model launches last year after recalling the new Fit hybrid five times in a year. Its quality problems have been compounded by the recall of millions of vehicles to replace air bag inflators made by Takata Corp, its biggest air bag supplier. ($1 = 119.0600 yen) (Editing by Edmund Klamann)