BASF issues profit warning, cuts global output

* BASF says now sees full-year profit below 2007 level

* Says to cut production at about 100 plants

* Says could reduce working hours at its sites

* Shares drop 13.1 percent

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FRANKFURT (Reuters) - BASF BASF.DE cut its 2008 profit outlook for the second time in two months and said it would cut back production, citing a "massive" decline in demand in key industries.

The world's largest chemicals maker by revenue said on Wednesday it no longer expected to reach the 2007 level of earnings before interest and taxes (EBIT) before special items.

It said it would temporarily shut down 80 plants worldwide and reduce production at about 100 plants.

"In particular, customers in the automotive industry have cancelled orders at short notice," Chief Executive Officer Juergen Hambrecht said. "How the coming year will develop is difficult to foresee. BASF is preparing for tough times."

Customers are running down inventories and are having a hard time taking out debt, BASF also said.

Some 20,000 employees would be affected by the production cuts, including about 5,000 at its main site in Ludwigshafen, southern Germany, the company said.

BASF shares fell 15.9 percent to 21.40 euros by 1349 GMT, while the German blue-chip DAX index .GDAXI was down 3.4 percent.

"The knee-jerk reaction in the market is shocking. The company has signalled further deterioration in demand over the past few weeks," said Heinz-Josef Stenten, a fund manager at Generali Asset Management, which owns BASF shares.

In late October, the company had said it would "make every effort to match" last year's EBIT before special items, toning down a previous forecast for a slight gain in earnings.

BASF said it would reduce capacity until January by using flexible working time models and could cut working hours for its employees should demand still be weak beyond that time.

"Hambrecht is doing the right thing to reduce capacity," Sal. Oppenheim analyst Marcus Konstanti said. "The question is how things will develop after January. The destocking effect coupled with lower demand volumes makes business trends very hard to predict at the moment."

BASF's lower outlook echoes recent gloomy statements from its peers. The chief executive of close rival Dow Chemical (DOW.N), Andrew Liveris, said last week the U.S. chemical maker was likely to announce a restructuring of operations before the end of 2008 to deal with a steep decline in demand. [nN14426775]

BASF's shares trade at 7.7 times estimated 2009 earnings, below a multiple of 8.1 for its European peers in the DJ Stoxx Chemicals Index .SX4P.

(Reporting by Ludwig Burger; editing by Knut Engelmann and Simon Jessop)