* H1 profit down 34 percent to 297.8 million pounds, beats forecast
* H1 dividend maintained at 8.3 pence, no plans for FY cut
* October trading "volatile", cautious outlook
* Like-for-like clothing sales fall, underperform Primark
* Shares up 4.7 percent (Adds comments from media conference, updates shares)
By James Davey
LONDON, Nov 4 (Reuters) - Marks & Spencer Plc, Britain's biggest clothing retailer, posted a smaller-than-expected fall in profit and reassured investors on its dividend, as it warned trading will be tough next year.
The first-half profit outcome, a maintained half-year dividend and comments that there were no plans to cut the full-year payout sent shares in the 124-year-old company over 11 percent higher.
At 1503 GMT, the stock was up 4.7 percent at 232 pence, outperforming a 1.8 percent rise in the blue-chip FTSE index.
But Executive Chairman Stuart Rose predicted trading conditions will remain difficult throughout the whole of 2009.
"Let's just hope as we get 12 months down the road things look a bit better. But it will depend on what global action is taken to get through this very unpleasant liquidity crisis," he said.
Many UK retailers are struggling as shoppers cut back on spending amid rising unemployment, falling house prices and growing fears of recession.
On Friday, bellwether British retailer John Lewis reported a 9.8 percent fall in sales at its department stores for the week ended Oct. 25 and warned of a "testing" Christmas.
Smaller discount fashion retailer Primark reported a 4 percent rise in annual like-for-like sales on Tuesday which analysts attributed to its rock-bottom prices and perceived value attracting cash-strapped shoppers.
That contrasted sharply with mid-market M&S whose first-half UK clothing and homeware sales fell 6.2 percent.
Rose said he was taking a "glass half-full" attitude to the crucial festive season and hopes to stimulate trade with a TV advertising campaign featuring pop group Take That.
"Trading throughout October has been volatile with recent events in the financial markets and their impact on the wider economy further weakening consumer sentiment," he said.
M&S said profit before tax and one-off items fell 34 percent to 297.8 million pounds ($483.2 million) for the six months to Sept. 27, down from 451.8 million a year earlier.
This beat forecasts which ranged from 280 million pounds to 295 million and a consensus of 290 million provided by the company which was based on a poll of 13 analysts.
It was the group's worst first-half performance since 2004 -- the year Rose was parachuted into the retailer to fend off a bid approach from Bhs and Arcadia owner Philip Green.
Some brokers, such as Credit Suisse and Panmure Gordon, still think M&S will cut this year's final dividend.
But Rose said: "The business is run by the board of M&S and the board of M&S has been quite clear ... the dividend policy's unchanged."
Last month, the retailer said it was cutting costs and investment to cope with tough trading.
Sales, already detailed in an Oct. 2 trading update, increased 0.8 percent to 4.2 billion pounds.
UK sales on a like-for-like basis, which strips out the impact of new space, fell 5.7 percent, with non-food down 6.2 percent and food down 5.3 percent.
M&S's UK non-food gross margin fell 0.65 percentage points, while the food gross margin was down 1.70 percentage points.
Finance Director Ian Dyson said for the full-year to end-March 2009 the group was sticking to guidance for UK gross margin as a whole to be down 1 percentage point, although he said "there may be risk on the downside".
Analysts at Credit Suisse said in a research note the margin decline in food was the key figure in the results. Coming after a first-quarter increase they said the fall indicated the scale of the adjustment made in the second quarter "which did not appear to give any material stimulus to sales performance."
Rose said that although the group lost market share in food its market share in clothing remained "extremely robust".
The group was tackling problems, such as poor stock availability and insufficient promotions at its upmarket food business.
"Dine in for two for 10 pounds", and "Weekend Specials" offers had proved popular, while prices had been cut on 560 food products, 10 percent of its offer.
M&S ended the half-year with net debt of 3.1 billion pounds.
Dyson said no short-term refinancing was required with the group's debt having an average maturity of 10 years.
He said M&S was targeting a broadly cash neutral position for the current year and hoped to generate cash next year.
The group has no plans for major redundancies although some jobs will go in areas where capital expenditure was being cut.
Shares in the retailer have plunged as much as two-thirds in value over the past 18 months and hit a 7-1/2 year low of 191.9 pence in September.
(Additional reporting by Rhys Jones; Editing by Chris Wickham and Erica Billingham)