* H1 underlying profit 359 million sterling vs forecast 358 million sterling
* Like-for-like sales ex-fuel/VAT up 7.8 percent
* Sees slower mkt growth in H2 as food price inflation eases
* Interim dividend up 35 percent to 1.08 pence a share
* Shares down 1.7 percent as sector retreats after strong gains
(Adds CEO, FD, more analyst comment, shares)
By Mark Potter
LONDON, Sept 10 (Reuters) - Wm Morrison Supermarkets posted a 22 percent rise in first-half profit, nudged up its full-year forecast and hiked its dividend, but its shares dipped as it warned market growth would slow in the months ahead.
Analysts said it was no surprise sales growth would slow as food price inflation eases, but the comments sparked some profit taking from investors following a strong run in Morrison shares since it raised profit forecasts in a trading update in July.
"The figures were exceptional, but in line with expectations," said Seymour Pierce analysts in a research note.
The share price fall was also part of a broader bout of profit taking on UK retail stocks, which have risen about 20 percent over the past two months on hopes of an economic recovery, despite better-than-expected sales from Home Retail and Kesa.
Morrison, Britain's fourth-biggest supermarket chain, said on Thursday it made profit before tax and one-off items of 359 million pounds ($592.8 million) in the six months to Aug. 2.
Analysts' forecasts ranged from 350 to 366 million, with an average of 358 million, according to a Reuters poll of eight.
Sales at outlets open at least a year rose 7.8 percent, excluding fuel and VAT sales tax, a slowdown from the 8.2 percent reported in the first quarter, but comfortably beating the latest number from market leader Tesco.
Tesco, Britain's biggest retailer, said underlying UK sales rose 4.3 percent in the 13 weeks to May 30.
Morrison, which serves about 10 million shoppers a week from over 400 stores, said it continued to benefit from a focus on low prices, innovative promotions such as breakfast for four for 4 pounds, and the popularity of its fresh food "Market Street", which includes an in-store baker, butcher and fishmonger.
Chief Executive Marc Bolland told reporters he expected industry growth to slow to a low single-digit percentage from 5.9 percent in the first half, but was confident Morrison would continue to thrive.
At 0820 GMT Morrison shares, which had risen about 12 percent since the profit upgrade in July, were down 1.7 percent at 279.8 pence, having fallen as low as 271.4 pence.
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"Certainly strong results have been anticipated given the share price performance over the last week. However, we think there is still plenty of operating upside and future cash flow/dividend opportunity," Credit Suisse analysts said.
Morrison, also one of Britain's top five food manufacturers, hiked its interim dividend by 35 percent to 1.08 pence a share.
Finance Director Richard Pennycook said he expected analysts' consensus forecast for full-year profits to rise to about 750 million pounds from 740 million as the cost of converting a number of stores recently bought from rival the Co-Op would be about 10 million less than previously envisaged.
Bolland said sales at converted stores were about 50 percent higher than those generated by the previous owner.
He also saw signs that shoppers were allowing themselves more treats than at the same time last year, with sales of cakes up by a double-digit percentage. But their main focus was still on value, he added.
Bolland also said he was "very happy" at Morrison, and that speculation he might be in the running to succeed Stuart Rose as chief executive of Marks & Spencer was "not relevant".
Morrison shares have lagged the DJ Stoxx European retail index by about 10 percent this year, as investors bought general retail stocks on hopes of an economic recovery. They trade at 14.5 times forecast earnings, above Tesco on 12.7 but below J Sainsbury on 14.7, according to Reuters data. (Editing by David Holmes and Jon Loades-Carter) ($1=.6056 Pound)