* Interim profit slides 44 pct to $681 mln
* Fortescue's ore sold at 32 pct discount to benchmark price
* Sticks to FY18 iron ore cost target at $11-$12/WMT
* Shares fall more than 4 pct
(Adds results details, CEO comment)
MELBOURNE, Feb 21 (Reuters) - Australia's Fortescue Metals Group reported a 44 percent drop in first-half profit, hit by weak prices for its lower quality iron ore, and paid a weaker dividend than expected, sending sent its shares down more than 4 percent.
The world no.4 iron ore miner's net profit for the six months to December fell to $681 million from $1.22 billion a year earlier. Three analysts on average had expected net profit of $610 million.
Earnings have been hit by weak prices for the quality of iron ore that Fortescue produces, as Chinese steel makers stepped up demand for higher grade ore to help meet efforts to cut pollution.
Fortescue said its ore sold at 32 percent below the benchmark iron ore price in the first half, compared with a discount of 14 percent a year earlier.
It cut its interim dividend to A$0.11 a share, down from A$0.20 a year ago, paying out only 40 percent of its net profit after tax, although it maintained its guidance for a payout ratio between 50 percent and 80 percent of full-year net profit.
It said the dividend payout reflected its "consistent operating performance and financial outlook".
Fortescue said it was continuing to focus on cutting costs, holding to a forecast for iron ore costs to fall to between $11 and $12 per wet metric tonne for the year to June 2018.
It also lined up a $1.4 billion funding deal with Chinese, Australian and international lenders, which it said would help cut debt costs, as it would be used to partially repay existing notes with a high rate of 9.75 percent.
"This facility lowers Fortescue's average cost of capital, improves flexibility, strengthens the balance sheet and further develops our strong relationships with China," Fortescue's new chief executive, Elizabeth Gaines, said in a statement.
(Reporting by Sonali Paul; editing by Richard Pullin)
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