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UPDATE 2-Nissan closes gap on Honda with speedy H1 growth

(Releads, adds details and background throughout)

By Chang-Ran Kim

TOKYO, Nov 19 (Reuters) - Nissan Motor Co said on Tuesday it had racked up record six-month earnings and stood by its forecast of bumper full-year profits, closing the gap on Japan's second-largest automaker, Honda Motor Co .

The figures for April-September confirmed preliminary results issued on October 23.

Driven by lower purchasing costs and strong sales of new models including its first minivehicle, the "Moco", Nissan said its group operating profit jumped 84 percent to 348.30 billion yen ($2.88 billion) for the first half.

With four other models launched in that period, sales grew 10 percent to 3.29 trillion yen, which prompted the automaker in October to raise its full-year forecast by 300 billion to 6.8 trillion yen.

Steering in the opposite direction from rival Honda, Nissan also lifted its operating profit forecast to 720 billion yen, which would represent a 47 percent jump from last year.

Although it sells fewer cars than Honda, the projected income would make Nissan -- which has come to be seen as the model for corporate rebuilding in Japan -- a bigger profit-earner.

Honda's latest forecast is for operating profit of 620 billion yen.

Nissan's preliminary results in October had exceeded the rosiest forecasts, boosting Nissan's shares as well as those of France's Renault , which owns 44.4 percent of Nissan.

The results were by far the best in Japan's auto industry, prompting several brokerages to upgrade Nissan's stock rating.

Given expectations of robust profit growth, Nissan also said last month it would aim to triple its dividend payout from last year's eight yen by fiscal 2004, starting with a 14-yen dividend for the current year to March.

That makes Nissan's dividend yield the highest among Japanese automakers, according to JP Morgan analyst Steve Usher.

Providing further good news for its shareholders, Nissan said on Tuesday it would buy back up to 30 billion yen of its stock by February 19. The shares ended up 2.33 percent at 967 yen.

VYING FOR SECOND PLACE

Armed with 12 all-new models, Nissan expects to sell 2.838 million vehicles worldwide this year, just short of Honda's forecast of 2.89 million.

But Honda has never been obsessed with ranking, sometimes sacrificing profit for the sake of independence.

While Nissan's speedy growth owes much to its close partnership with Renault, Honda has shunned capital alliances, especially with foreign automakers after a sour experience with Britain's Rover nearly 10 years ago.

Honda has also taken on costly projects alone -- the most conspicuous being its work on green technology -- rather than tie up with rivals, as Nissan did recently with Toyota Motor Corp , to save money.

Reflecting this difference, Honda spends much more on research and development -- it plans 440 billion yen this year -- compared with Nissan, which expects to spend 290 billion yen.

That may explain why Honda's shares have fallen out of favour with many analysts, who say Honda will be hard-pressed to achieve the degree of profit growth expected at Nissan.

Citing this as one factor, Goldman Sachs upgraded Nissan Motor to market outperformer from market performer last month, lowering Honda to market performer from its recommended list.

A day after Honda announced its results, its shares plunged 14 percent to a year-to-date low of 4,330 yen. Nearly three weeks later, the stock is still stuck near those levels.

"We believe Nissan is an ideal pick in terms of top-line growth potential considering the rapid-fire releases of new profitable models," Goldman Sachs wrote in a recent report.

"We expect Nissan to enjoy the strongest product momentum of the three majors, considering Honda is currently suffering from a dip in its domestic model cycle and Toyota is planning on the slow-and-steady launch of new models," it added. ($1=121.00 yen)