LONDON (Reuters) - Signet Group Plc (SIG.L: Quote, Profile, Research), the world's biggest speciality jewellery retailer, unveiled a 16.8 percent fall in annual profit on Wednesday and said its outlook remained very challenging.

Signet, which in February said fourth-quarter sales were hit by a tough U.S. market in January and a disappointing Christmas in Britain, said group pretax profit was $333.5 million in the year to Feb. 2.

The retailer had been expected to report profit of around 169.7 million pounds ($334.4 million) according to the average of 14 analyst forecasts given to Reuters Estimates, in a range of 165.3-172.6 million pounds ($325.7-$340.1 million).

"2007/08 was a very demanding year for the group, with a particularly difficult fourth quarter," Chief Executive Terry Burman said in a statement.

"The outlook remains very challenging on both sides of the Atlantic," he added.

Signet, which in January said annual profit could be below forecasts having already warned on earnings in November, said in February that group like-for-like sales fell 0.7 percent in the year to Feb. 2.

Group like-for-like sales fell 6.7 percent in the fourth quarter after growth of 3.2 percent in the third quarter.

Like-for-like sales in the United States, where Signet trades as Kay Jewelers and Jared the Galleria of Jewelry, fell 8.6 percent in the fourth quarter, while sales in the UK, where Signet trades as H.Samuel and Ernest Jones, fell 1.7 percent.

Shares in Signet, which have underperformed the UK general retailers' index .FTASX5370 by around 15 percent in the past 12 months, were up 4.1 percent at 64 pence, valuing the company at around 1.15 billion pounds ($2.27 billion).

(Reporting by Mike Elliott; Editing by David Cowell)