(Corrects Axa share price to "up" from "down" in last bullet)
* AXA H1 net profit 1.32 bln eur vs poll avg 896 mln
* Swiss Re Q2 net loss 381 mln Sfr vs f'cast 139 mln profit
* Standard Life H1 profit 348 mln stg vs 338 mln consensus
* Old Mutual profit down 30 pct, US unit needs more cash
* Axa up 1.6 pct, paring early gains; Swiss Re dn 2.1 pct
(Adds analyst comment, details, background)
By Sudip Kar-Gupta and Jason Rhodes
PARIS/ZURICH, Aug 5 (Reuters) - Axa, Europe's second-largest insurer, was wary over the sector outlook, despite smashing profit forecasts, while a shock earnings slump at reinsurer Swiss Re underlined the need for caution.
Analysts said that half-year results from the pair on Wednesday demonstrated that a market rebound since March has not banished the insurance sector's problems, and warned that the market rally could prove to be short-lived.
"I think that of the insurers that have reported so far in the second quarter, some have benefited from improvements in the financial markets, but older problems are only now clouding the reported picture," said Standard & Poor's Equity Research analyst Mark Nicholson.
"We've had a good run for a few months, but it would be premature to say this is going to continue."
REDUCED IMPACT
Axa said tighter credit spreads had reduced the hit from falling asset values in the first six months of 2009 by 819 million euros compared with a year earlier.
That helped it post a half-year net income of 1.32 billion euros, down 39 percent compared with last year, but comfortably ahead of the mean forecast of 896 million euros in a Reuters poll of 10 analysts.
AXA shares rose as much as 5.4 percent to 16.14 euros in early trading, their highest since January, but later pared gains to close 1.6 percent higher.
The French insurer, nonetheless, remained cautious regarding its future prospects, saying only that while it was ready to reap the benefits of a market rebound, it was also prepared to cope with another slump.
"We are prepared to withstand a further possible market downturn and we are well positioned to benefit from a market upturn," Axa chairman Henri de Castries said in a statement.
LOSING STREAK
Swiss Re, forced last year to sell convertible securities to billionaire investor Warren Buffett after the U.S. subprime mortgage meltdown tore holes in its balance sheet, illustrated the dangers of calling the all-clear too soon.
The reinsurer reported a surprise net loss of 381 million Swiss francs for the second quarter after absorbing charges totalling 2.1 billion Swiss francs.
That missed by a wide margin the 139 million Swiss franc profit expected by analysts, according to the average of 12 estimates collected by Reuters.
While the charges largely comprised mark-to-market losses related to a corporate bond hedging programme, they also included a further 600 million Swiss francs in impairments on asset-backed securities.
"These things do tick away in the background, and it can take several quarters for them to work their way through the accounts," Nicholson of Standard & Poor's Equity Research said.
Swiss Re shares closed 2.1 percent lower at 42.48 Swiss francs.
European insurance stocks fell steeply in the first quarter of the year on concerns falling equity markets and rising corporate bond defaults could eat into insurers' capital, potentially forcing rights issues.
But the shares have since rebounded, helped by a broader financial market recovery, and the DJ Stoxx European insurance index is now flat compared with the beginning of the year.
CHALLENGING ECONOMY
Standard Life, Britain's fourth-biggest life insurer, and Anglo-South African rival Old Mutual, on Wednesday also struck a cautious note on the outlook after reporting half year results broadly in line with forecasts.
Standard Life said that while financial markets had strengthened, "the economic environment continues to be challenging," and warned that the outlook for retail savings was set to remain "subdued".
Old Mutual, hit last year by hefty losses at its U.S. life business, said it was only now in a position to "look past theimmediate market challenges and begin to position ourselves for the upside which will come as markets recover."
Standard Life shares closed 1.9 percent lower after the company reported a half-year operating profit down 35 percent on the year at 348 million pounds.
Analysts had expected 338 million pounds, according to the average of 11 estimates collected by the company.
Old Mutual had pretax profit on an International Financial Reporting Standard basis down 30 percent on the year at 538 million pounds, compared with the 555 million pounds pencilled in by analysts. Shares in the company settled 1.2 percent higher. (Additional reporting by Lorraine Turner; writing by David Holmes and Myles Neligan; editing by Karen Foster)