* Investment and trading income down
* Lending also declined
* Australian home loans improve
JOHANNESBURG, Sept 13 (Reuters) - South African investment bank and asset manager Investec said on Thursday it expects flat first-half earnings, following declining investment and trading income and despite a recovery in its home loans business in Australia.
Investec has been the worst hit of major South African banks by the global economic meltdown, given its exposure to Europe and Australia.
Bigger rivals -- Standard Bank, FirstRand and Nedbank -- have reported profit increases but No. 3 bank Absa Group saw profit shrink in the first half as a result of bad mortgages.
Dual-listed Investec said in a trading update it expects pre-tax operating profit for the six months to end-September to come in line with last year.
Lower investment and trading income are expected to cut earnings in the United Kingdom, but Investec's South African business is seen showing an improvement in local currency terms.
Investec said lending fell 3 percent to 17.7 billion pounds, which caused a marginal decline in net interest income.
The lender said its Australian unit was profitable once more as impairments, or bad debt costs, fell away.
The $5.7 billion bank has turned its focus to wealth management and other fee-earning businesses to compensate for low credit demand and as tougher regulations demand more capital.
It is trading at a trailing price earnings ratio of 13.2 times, compared with a peer median of 11.7 times. Profitability is also lagging that of counterparts with return on assets at 0.5 percent and an average of 1.9 percent for competitors.
Investec shares are down 0.3 percent at 0819GMT, but have gained 18 percent so far this year, compared with an 10 percent rise in Johannesburg's index of blue chips.