ANZ posts biggest earnings drop since 2008; investors cheer reset

* H1 cash profit A$2.78 bln vs A$3.48 bln consensus

* Marks end of six years of record profits

* Shares rise nearly 4 pct (Adds details on market reaction)

By Swati Pandey

SYDNEY, May 3 (Reuters) - Australia's No. 4 lender, ANZ Banking Group, on Tuesday posted its biggest half-yearly decline in cash profit since 2008 and slashed dividends for the first time in seven years on rising corporate defaults triggered by a mining downturn.

The result marks the end of six years of record profits for ANZ and comes a day after No.3 lender Westpac Banking Corp missed earnings forecasts, confirming the negative trend for Australian banks as they battle the commodities downturn and tougher capital requirements.

The big earnings drop at ANZ, the only major Australian bank with a large presence in Asia, also comes in an election year when banking sector misconduct is a hot issue following a series of scandals including insurance fraud and rate rigging.

Still, ANZ shares jumped nearly 4 percent on Tuesday as investors welcomed the bank's move to invest in technology upgrades, cut dividends to protect capital and focus on growth at home. At 0227 GMT, the shares were up 3.92 percent at A$24.66 while the broader market was 0.85 percent higher.

"ANZ is making the right decisions," UBS analyst Jonathan Mott said in a note to clients.

"When combined with asset sales and a run-off of low-yielding Asian institutional business, (the dividend cut) should further strengthen ANZ's capital position."

ANZ sold its vehicle finance business late last year and is now in the process of finding a buyer for its plant and equipment finance business. It is also considering the sale of its minority stakes in Asia.

On the technology front, for example, ANZ last month became the first Australian bank to launch Apple Inc's mobile payment service Apple Pay.

The moves are part of new CEO Shayne Elliott's efforts to restructure the bank's Asian business and shift focus to areas where growth is faster and returns attractive.

ANZ booked one-off restructuring costs and writedowns of A$717 million during the half, which analysts say would help the bank position for a tougher environment in Asia and at home.

Excluding the one-offs, the result was not a surprise, analysts said.

"The world's changed - the competitive landscape, the economic outcome in many of our markets, the regulatory stuff. So we have to reset the (Asian) business. That resetting means it's going to be smaller ... but better," Elliott said in a post-earnings call.

Cash profit for the first six months to March 31 slipped to A$2.78 billion ($2.13 billion) compared with A$3.68 billion a year ago and analyst estimates of A$3.48 billion. ANZ slashed its interim dividend by 7 percent to 80 cents.

ANZ booked a more than doubling in bad debt charges to A$918 million, while adding it continued to see "pockets of weakness" associated with low commodity prices in the resources sector.

While bad debt charges are rising, Australia's major banks have small exposures to mining and mining-related services and their total loan losses are near record lows.

It also booked a A$260 million impairment of its investment in Malaysia's AmBank, which is embroiled in a political scandal linked to state fund 1Malaysia Development Berhad. ($1 = 1.3046 Australian dollars) (Reporting by Swati Pandey; Editing by Stephen Coates)