MADRID (Reuters) - Zara owner Inditex (>> Inditex SA) suffered a worse-than-expected fall in its second quarter margins as trading in its lucrative overseas markets turned tougher.

The company's second quarter gross margin fell to 56.5 percent from 58.9 percent a quarter earlier, further than analysts had expected.

"We can only assume that the competitive situation has again deteriorated in emerging markets, as was clear from ASOS yesterday," said Credit Suisse analyst Simon Irwin in a note to clients.

British online fashion retailer ASOS, hit by the strength of sterling, warned on profit on Tuesday, saying it needs to cut prices and improve service in international markets to reverse a sharp slowdown in sales growth.

Inditex, now the world's largest clothing retailer by sales, has outperformed many rivals in the global crisis through its aggressive expansion to some 88 markets including fast-growing cities in China.

But other European retailers are following its international path and results were hit this year by the fall of currencies against the euro in markets like Russia, where analysts estimate it makes almost 6 percent of its sales, and Japan, where it makes an estimated 4 percent.

Shares were down 2.0 percent at 0822 GMT (09:22 a.m. BST) to 22.9 euros while shares in Swedish rival Hennes and Mauritz (>> H & M Hennes & Mauritz AB) were up 0.3 percent after it posted a 19-percent forecast-beating rise in August sales on Monday.

The strong euro hit Inditex's sales by 4 percentage points in the first-half for the period Feb. 1 to July 31 but the effect is expected to ease by the end of the year.

On a conference call, Chairman and Chief Executive Pablo Isla said the group maintained its target to end the year with a stable margin.

The retailer's definition of a stable margin is one that rises or falls by no more than 50 basis points year on year.

Inditex's costs rose less than expected as it continued to complete refurbishments of large, flagship stores, which are designed to improve shoppers' in-store experience in an age of growing online shopping.

Cost controls helped Inditex post a smaller-than-expected 2.4 percent drop in first-half net profit to 928 million euros.

Earnings before interest, taxes, depreciation and amortisation slipped 0.4 percent to 1.6 billion euros while sales at Inditex's more than 6,400 stores rose 5.6 percent to 8.1 billion euros (6.43 billion pounds).

The operator of brands like Bershka and Massimo Dutti announced an extraordinary dividend of 0.242 euros per share against 2013 results.

Sales for the period Aug. 1 to Sept. 12 in local currencies rose 10 percent after increasing 11 percent in the first half to 8.1 billion euros.

Like-for-like sales, which strip out the increase to sales from new stores, grew 4.5 percent in the first half.

In Europe, where Inditex makes about two-thirds of sales, there is rising competition from budget retailers like Associated Foods' Primark (>> Associated British Foods plc) which are tapping price-conscious consumers.

Inditex still makes about a fifth of its sales in its Spanish home market where the economy is recovering after six years of crippling crisis marked by soaring unemployment.

Inditex is revamping and expanding its budget brand Lefties to retain price-conscious shoppers and opened its first stores in Russia in August.

(Reporting by Sarah Morris; Editing by Michael Urquhart)