*Q2 operating profit up 29 pct, cuts outlook by 5 pct
*Shares end up 4.5 pct before results, down 34 pct this yr (Recasts to lead on Q2, adds details, background, byline)
By Mariko Katsumura
TOKYO, Oct 30 (Reuters) - Mitsui Fudosan Co, Japan's biggest property developer, reported a 29 percent rise in quarterly operating profit on the back of a solid office leasing business but trimmed its outlook as the property market slows.
Japan's real estate market has been hurt by the economic slowdown while tighter credit has made it harder to finance property deals. The apartment market has been particurlarly hard hit and hundreds of smaller developers have failed.
Mitsui Fudosan and second-ranked Mitsubishi Estate Co have fared relatively well as they rely heavily on big commercial property development and office leasing, both of which generate steady revenues even when the economy turns down.
In the three months to September, Mitsui Fudosan had a group operating profit of 43.9 billion yen ($445.6 million), up from 34.2 billion yen a year earlier. Quarterly sales rose nearly 10 percent to 331.4 billion yen.
In this year alone, over 400 real estate firms have failed in Japan with combined debts of 1.5 trillion yen. Many of those failures have been smaller firms that relied on real estate securitisation and smaller development projects -- two areas knocked by the market slump.
For the full business year to next March 31, Mitsui Fudosan cut its operating profit forecast to 190 billion yen from 200 billion yen, which had been in line with the market consensus. It cut its sales target to 1.5 trillion yen from 1.53 trillion yen.
Japan's office leasing market has started to show signs of weakening in recent months. The vacancy rate in Tokyo's core business district increased to 4.07 percent in September from 2.59 percent a year ago.
But big developers tend to own a large proportion of first-class property located in central Tokyo. Those properties are still in strong demand, which helps to keep the vacancy rates of large developers low.
Mitsubishi Estate Co, which owns the U.S. Rockefeller Group as well as more than two dozen buildings in Tokyo's prime Marunouchi business district, is set to report its business results on Friday.
Prior to the announcement, shares of Mitsui Fudosan closed up 4.5 percent at 1,594 yen.
The stock has lost about 34 percent this year, outperforming a 47 percent fall in Tokyo's real estate industry subindex. IRLTY. ($1=98.52 Yen) (Editing by Michael Watson)