(Add analysts quotes, details)

* H1 net down on market slowdown and parts shortage

* H2 outlook to improve as parts supply shortage eases

* China car makers suffer after government end incentives

By Fang Yan and Ken Wills

BEIJING, Aug 30 (Reuters) - Dongfeng Motor Group , China's second-largest automaker, reported a 10.2 percent fall in its first-half earnings as a market slowdown and parts shortage in tsunami-hit Japan dented sales of Dongfeng's partners, especially Honda Motor .

The outlook will likely improve in the second half as Honda and Nissan Motor ramp up parts production at home, industry observers said.

"All Japanese automakers were affected by a production halt at home, and so their Chinese partners were affected, because they source some key components for Japan," said Zhang Yu, an analyst with AJ Securities.

"But things won't be so messy for the rest of the year as sales of Japanese cars are showing an uptrend already."

In a stock exchange filing on Tuesday, Dongfeng noted the cooldown of the Chinese auto market since the beginning of this year as well disruption of parts supply from Japan in the wake of the March disaster.

However, it remained optimistic on the longer term growth potential of the world's largest auto market.

Of Dongfeng's two Japanese partners, Nissan, part of the Renault-Nissan alliance, has been holding up better than Honda, thanks to its diversified sourcing practices.

Monthly sales growth at Nissan's tie-up with Dongfeng hit a low of 3.3 percent in April, but rebounded quickly to a 12.2 percent gain in May, rising further to 13 percent in June.

However, Honda, also a partner of Guangzhou Automobile Group Co , is in worse shape. In June, three months after the earthquake, sales of Dongfeng Honda plunged 52.9 percent from the year-ago period, deteriorating from a 36.6 percent drop in May.

Intensified marketing efforts to woo consumers into showrooms amid a cooling of the world's largest auto market have also weighed on automakers' earnings.

"A lot of automakers are doing promotions or offering free give-aways and that will eat into the margins," said Jonny Wong, an analyst with Yuantai Research.

From January to June, Dongfeng reported a net profit of 5.86 billion yuan ($918.4 million), compared with 6.53 billion yuan a year earlier That beat an average forecast of 5.27 billion yuan from five analysts polled by Thomson Reuters.

Revenue rose 3 percent to 63.7 billion yuan, it said.

Top Chinese automaker SAIC Motor Corp saw its first-half earnings rise 46.1 percent to 8.6 billion yuan, thanks to brisk sales of Buick and Passat models made at its Shanghai ventures.

Smaller rival Geely Automobile Holdings booked a net profit of 937.65 million yuan net income in the period, up 17 percent.

BYD earnings plunged 89 percent to 275.36 million yuan.

MARKET SLOWDOWN

Beijing in 2009 introduced tax incentives for small cars and handed out subsidies for farmers who traded in old, gas-guzzling vehicles for more fuel-efficient ones.

It scaled back the package in 2010 and scrapped them completely at the end of last year, a move that triggered a market slowdown.

In the seven months since the incentives were lifted, vehicle sales in the country have downshifted to a 3.2 percent annual growth rate, after jumping 32.4 percent in 2010, official data showed.

Home-grown brands -- which dominate the small car segment were hit especially hard after the incentives went.

Sales of Warren Buffett-backed BYD have slumped by nearly a fifth. Monthly sales of SAIC's proprietary Roewe, MG sedan as well as cheap mini-vans made at its majority-owned venture in southern China, also started to decline.

Dongfeng's own-brand passenger cars did not fare any better. Sales fell 8.5 percent to 14,295 units in the first six months.

Its overall sales, including trucks and cars made at its tie-up with PSA Peugeot-Citroen , were up 9.5 percent at 1.06 million units, during the period, beating a 3.4 percent gain of the overall market.

Dongfeng's shares traded in Hong Kong closed up 5.8 percent at 12.7 yuan on Tuesday, leading a 1.7 percent rise of the main index . They have lost 5.1 percent so far this year, compared with a 12.3 percent fall in the wider market. (Additinal reporting by Alison Leung in Hong Kong; Editing by Matt Driskill and Jon Loades-Carter)