PREVIEW-Taiwan's Cathay Fin Q2 results seen weak on stock slump

* What: Cathay Financial Q2 results

* When: Thursday, after the stock market close

* Big profit decline expected as slumping stocks hurt Cathay's investment portfolio

By Faith Hung

TAIPEI, July 9 (Reuters) - Cathay Financial (2882.TW: Quote, Profile, Research), Taiwan's top financial holding company, is expected to post a sharp drop in quarterly earnings as falling share prices hit profits at its banking and insurance businesses.

But hopes that the government will allow Cathay and other local banks to directly invest in China have offered some relief for the financial sector, whose prospects are otherwise gloomy as high inflation hurts Taiwan and other global economies.

Cathay and some rivals were hit hard in June, when Taiwan's main TAIEX share index plunged 13 percent on worries that record oil prices would hurt consumer and corporate spending. The index lost 12 percent in the second quarter.

Three analysts polled by Reuters offered a wide range of forecasts for Cathay's second quarter net profit -- from T$100 million to T$4 billion ($3.3 million to $132 million). The variance stemmed from differing opinions about the potential for write-downs due to losses on stock investments.

The company had previously reported a T$4.54 billion profit for the combined months of April and May.