CORRECTED - VP Bank hurt by market, banking secrecy pressure

(Corrects first paragraph to net income, not operating)

ZURICH, Aug 28 (Reuters) - Liechtenstein's VP Bank (VPB.S: Quote, Profile, Research, Stock Buzz) reported first-half net income more than halved to 41 million Swiss francs ($38 million) as tough markets hurt as well as pressure on banking secrecy rules.

The Vaduz-based bank said on Thursday client assets under management fell 9.3 percent to 34.7 billion francs due to declining equity markets and foreign exchange effects. The net outflow of funds was 99 million francs.

"The first half of 2008 was a phase that tested the mettle of VP Bank," Chairman Hans Brunhart said in a statement, adding the group expected markets would remain "very volatile".

While the bank has not had to write down any subprime related assets, it said it would only be possible to achieve its goals for 2008 if the negative effects of the crisis wane, noting this had not been the case to date.

"Apart from the negative developments in the financial markets, the increasing international pressure on countries that recognise banking secrecy has made matters more difficult for VP Bank," it said.

Earlier this year, Germany began one of its biggest ever investigations into suspected tax dodging, targeting 1,000 people suspected of parking money in Liechtenstein banks and involving raids on homes and offices across Germany.

It also drew in other European countries, fuelling calls for a crackdown on tax havens.

Prince Alois von und zu Liechtenstein, the head of the tiny Alpine state nestled between Austria and Switzerland, said earlier this month Liechtenstein would lift some of the veil of secrecy on its bank, making it harder to hide money there.

The state's third biggest bank said Liechtenstein should continue to demonstrate its willingness to cooperate with other countries while also safeguarding its long-term interests.

VP Bank said the fall in net profit of 58 percent compared to 96.8 million francs last year was mainly due to the fact that the valuation of financial instruments recognised under other income was down 31 million compared to the first half of 2007, which was influenced by special items.

Liechtenstein, a country of 35,000 residents whose economy is heavily dependent on the financial sector, is one of only three countries on the Organisation for Economic Cooperation and Development's (OECD) blacklist of uncooperative tax havens, alongside Andorra and Monaco. (Reporting by Emma Thomasson; Editing by Greg Mahlich)