Macquarie Group , Australia's top investment bank, spooked investors on Tuesday with a lukewarm outlook, warning them about weakening markets and sending its shares down 6 percent.

Macquarie shares suffered their biggest intraday fall in more than eight months after the bank issued a trading update that was roughly in-line with market forecasts, disappointing investors who had hoped for above-consensus results and a re-rating of the stock.

The fall was its worst since Australia ended a short-selling ban on financials that was put in place after the upheaval during the global financial crisis.

Macquarie, dubbed the 'millionaire's factory', said second-half profit could be 10 percent higher than the first half's, excluding one-off items, putting it in line with consensus forecasts of A$1.07 billion ($926 million) for the year ending March 31.

Deutsche Bank said in a note to clients that Macquarie's results were slightly below market forecasts and that the update was unlikely to lead to any broker upgrades on the stock. But the broker added that Macquarie's earnings growth should start to pick up in 2010/11.

Macquarie warned that some market conditions were weakening, creating concerns over its Australian equity capital markets business. Despite reporting excess capital of about A$4.5 billion, it also noted in its outlook that cash balances were likely to fall.

It also said that acquisition opportunities are likely to shrink going forward.

I think with the world going back to normal, which seems to be the case at the moment, you would expect the number of acquisitions to be treading back toward normal, Chief Executive Nicholas Moore told an analysts' briefing.

Macquarie, which has used the global financial crisis to buy assets cheaply offshore, gave no update on its plans for its excess capital, merely reiterating its need for a strong balance sheet.

Economic conditions continue to trend back to normal but strong market conditions experienced in the first half have moderated in certain areas including Australian equity capital markets and credit businesses, Moore said.

Macquarie shares fell as much 6.5 percent to A$47.10, its worst one-day percentage fall since late May. By mid-morning, the shares recouped some of their losses to be down 5.7 percent.

Trading volume was heavy, with more than 2 million shares changing hands, compared with the 1.86 million average daily volume over the past 90 days.

Analysts are not expecting much of a surprise in 2009/10 but are factoring in a strong 2010/11 on full contributions from acquisitions and resurgent merger and acquisition markets.

Macquarie said its balance sheet was likely to see a fall in cash balances as funds were deployed across businesses, equity investments were maintained at or below current levels and on lower investment levels in listed funds.

($1=1.156 Australian Dollar) (Reporting by Narayanan Somasundaram; Editing by Mark Bendeich and Muralikumar Anantharaman)

Australia Investment