Annual profit slumps 16 pct, but beats expectations Company says...

• Annual profit slumps 16 pct, but beats expectations
• Company says "market pressures" grow, announces capital raise
• Shares drop 8 pct

(Adds details of entitlement offer, share fall, background)

SYDNEY, Aug 31 (Reuters) - Australian retailer Harvey Norman Holdings Ltd (HVN) posted a 16 percent slump in annual profit on Friday and announced a heavily discounted capital raising, sending its shares sliding almost 8 percent in early trade.

Australia's biggest electronics retailer, facing stiff competition from online rivals, plus cooling property markets crimping sales, also said "market pressures" intensified in the second half of the financial year.

Net profit for the year ended June 30 dropped to A$375.4 million ($272.5 million), dragged down by an ill-fated dairy investment and a slowdown in revaluations of its property holdings.

That came in above market expectations for A$368.1 million, the average of six analyst estimates according to Thomson Reuters I/B/E/S/.

But the market had also expected a special dividend, said Mathan Somasundaram, market portfolio strategist at stockbroker Blue Ocean Equities. Instead, Harvey Norman announced a A$163.85 million equity raising at A$2.50 per share, a third below the stock's closing price on Thursday.

Shares fell as much as 7.9 percent to a two-week low in early trade, its biggest intraday drop in 6 months, before recouping some losses to be 4.5 percent down at lunchtime. The broader market (xjo) fell 0.2 percent.

"The property cycle tells you it will go lower, most of the market hasn't been buying retail stocks ... From whichever way you look at it, it's probably not a good play," Somasundaram said.

The company said revenue rose 8.8 percent to A$1.99 billion and underlying profit, which strips out one-off costs like its dairy impairment, fell 1 percent to A$532.5 million.

($1 = 1.3778 Australian dollars)