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ICAP shares sink as first-half profit falls sharply

LONDON (Reuters) - ICAP shares sank almost 8 percent on Wednesday after the world's largest interdealer broker reported a 38 percent fall in first-half profit and gave a cautious outlook for the rest of the year.

ICAP (IAP.LO) which matches buyers and sellers of bonds, swaps and currencies, said profit before tax for the six months to Sept. 30 was 86 million pounds($135 million), compared with 139 million pounds a year earlier.

The decline reflected a "combination of on-going investment in new businesses, weaker trading volumes and the adverse impact from FX movements", ICAP said.

ICAP shares fell 7.9 percent to 395.2 pence at 1237 GMT and were among the biggest fallers on FTSE 250 index <.FTMC>.

Interdealer broking revenues have plunged as banks pull back from risky trading activities to comply with new rules brought in after the financial crisis.

Their troubles have been deepened by years of low interest rates, which have dampened market volatility and reduced revenue from trading products such as interest-rate swaps.

Chief Executive Michael Spencer said the company was "cautiously optimistic" about recent signs of a pickup in activity amid greater volatility brought on by geo-political and macroeconomic events.

However, it said it had not changed its full-year expectations as it was too early to predict whether current activity levels would persist.

Analysts expect full-year pretax profit of 215.7 million pounds, according to Thomson Reuters data.

Canaccord Genuity, which has a sell rating on the stock, said in a note that headline revenue growth would remain challenging at least in the near to medium term.

ICAP has been repositioning towards faster-growing areas like electronic trading and post-trade to offset the slump. Those divisions now make up 83 percent of operating profit, ICAP said.

It is also restructuring and said it was on target to deliver 60 million pounds in annual savings, after cutting around 260 broker jobs. Spencer said there were no further material headcount changes in voice broking planned.

ICAP also confirmed that its shipping business is in merger talks with rival Howe Robinson and said it is not under investigation over allegations of currency market manipulation.

(1 US dollar = 0.6382 British pound)

(Reporting by Clare Hutchison; Editing by David Holmes and Susan Thomas)