* Q2 operating profit 20.9 bln yen vs consensus 20.1 bln yen
* Cuts full-yr profit f'cast to 90 bln yen from 120 bln yen
* Shares end up 0.2 pct before results
* Cuts yen/dollar rate assumption to 82 yen from 88 yen
* Production slowed at state-of-the-art panel factory (Recasts, adds comments)
By Isabel Reynolds
TOKYO, Oct 28 (Reuters) - Japan's Sharp Corp, hit by the yen's rise and falling prices for its liquid-crystal display panels, aims to cut costs and push sales of its speciality 3D and extra-large panels, but admits the outlook is murky.
The twin blows of currency levels and prices slashed Sharp's quarterly profit by 24 percent from a year earlier and forced the maker of Aquos TVs to cut its full-year profit forecast closer to market expectations.
"Considering the steep fall in prices for large LCD panels combined with an unexpectedly sharp rise in the yen, we lowered our profit forecasts as you see," President Mikio Katayama told reporters on Thursday.
Sharp relies on foreign markets for about 50 percent of its sales and like other Japanese exporters has seen the yen's strength erode the value of its overseas earnings. The yen is hovering near a 15-year high against the dollar.
Investors may be less concerned about any further rapid advance in the value of the yen, however, and more worried about the performance of Sharp's TV business, said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
"Its overseas sales haven't been strong, and a lot will depend on its sales at home, though the prospect isn't really bright there either," he said.
Sluggish demand forced Sharp, which competes with Samsung Electronics and LG Display in LCD panels, to cut production rates at its state-of-the-art Sakai panel plant in western Japan earlier this year, hurting profits.
No turnaround is in sight for TV panel prices in the second half of the financial year to March, Katayama said, with economic woes taking a toll on demand in the U.S. and European markets.
"I think the supply and demand situation will get worse. I also think prices will continue to fall," he added.
Sharp posted an operating profit of 20.9 billion yen ($256 million) for July-September quarter, versus a 27.6 billion yen profit a year earlier and roughly in line with market expectations.
For the full year to March, Sharp cut its operating profit outlook to 90 billion yen from 120 billion yen, lower than the consensus for an annual profit of 94.7 billion yen, according to a survey of 24 analysts by Thomson Reuters I/B/E/S.
For the second half of the business year the LCD panel maker said it expects an average exchange rate of 82 yen to the dollar for the October-March second half, compared with an earlier estimate of 88 yen.
Sharp raised its full year sales forecast for its solar cell business to 280 billion yen from 250 billion yen. The company is the world's third-largest producer of solar cells by shipments, after First Solar and Suntech Power.
Shares of Sharp have fallen about 28 percent in the year to date, underperforming a 5.9 percent fall in the broader electrical machinery index. Its stock closed 0.24 percent higher at 844 yen in Tokyo on Thursday. ($1=81.69 Yen) (Additional reporting by Tim Kelly; Editing by Michael Watson)