UPDATE 2-Aberdeen's profits hit by investors' flight from emerging markets

(Corrects first paragraph to read "was facing" instead of "suffered")

* H1 underlying pretax profit down 40 pct

* Revenues down 20 pct; interim dividend 7.5 p/share

* Shares (Berlin: DI6.BE - news) down 7.9 pct, leading FTSE mid-cap fallers

By Simon Jessop

LONDON, May 3 (Reuters) - British funds firm Aberdeen Asset Management was facing the biggest one-day drop in its share price since the height of the financial crisis on Tuesday, after reporting a slump in first-half profits due to investors fleeing emerging markets.

A barometer for investor sentiment towards the highly volatile developing economies of Asia, Africa and Latin America, the firm has seen billions of pounds pulled out of its funds amid concerns around global growth.

While its emerging markets-focused equity funds posted net inflows for the first time in three years in the three months to end-March, total outflows remained stubbornly high at 16.7 billion pounds and the firm said more could follow in the coming quarters.

That weakness was reflected in a 20 percent fall in its first-half revenue and 40 percent fall in underlying pretax profits to 162.9 million pounds ($239.84 million), with assets under management dropping to 292.8 billion pounds at the end of March from 330.6 billion a year ago.

Aberdeen's shares were down 9.7 percent at 269.6 pence by 1110 GMT, heading for their biggest one-day drop since October 2008 and making them the biggest faller in a marginally weaker FTSE mid-cap index.

"These results reflect the challenging conditions Aberdeen has faced during the past three years, in particular weakness in emerging markets," Aberdeen's chief executive, Martin Gilbert, said in a statement.

While the impact of persistent asset outflows had been tempered by an emerging market rally in recent weeks and currency gains, the company said it remained vulnerable to further outflows over the next few quarters.

"It (Other OTC: ITGL - news) is encouraging to note that our equity portfolios have performed strongly against their respective benchmarks during the first four months of 2016 as investors have begun to focus once again on companies which had previously been undervalued by the market," said Chairman Roger Cornick.

"However, this does not mean a dramatic improvement in new business flows is anticipated in the short term, as we recognise that many potential investors may need more evidence that this rotation is firmly established before investing."

In response, Shore Capital analyst Paul McGinnis advised clients to sell out in favour of rivals Henderson or Schroders (LSE: SDR.L - news) , both of which saw assets rise in early 2016, thanks largely to currency gains.

"We think the sharp rise in the Aberdeen share price on the back of a recent EM rally has not only gone too far but also risks masking the weaker fundamental issues surrounding fund redemptions and investment performance," he wrote in a note.

Aberdeen said it would pay an unchanged interim dividend of 7.5 pence a share and Gilbert told reporters on a news conference call that the board was committed to paying out a progressive dividend, although it was dependent on the outlook.

In response to the still-weak environment, Aberdeen said it planned to deliver 70 million pounds of annualised "cost efficiencies" by 2017, but Gilbert said there was no scope to materially increase that amount without degrading client services.

Armed with 401.4 million pounds in cash, with headroom of 218 million above the regulatory capital it is required to hold, Gilbert said he was open to bolt-on acquisitions, although there was nothing in the pipeline. ($1 = 0.6792 pounds) (Reporting by Simon Jessop; Editing by Sinead Cruise and Greg Mahlich)