(Corrects paragraph 4 to clarify the production capacity numbers are from before the U.S. Steel takeover)

By Yuka Obayashi and Katya Golubkova

TOKYO (Reuters) -Nippon Steel ( NISTF ), Japan's biggest steelmaker, said it expects to report a 14% fall in annual profit before one-offs for the current fiscal year, but that excluded its outlook for U.S. Steel, due to significant challenges in the U.S. market.

The Japanese steelmaker expects an underlying business profit, or profit adjusted for one-offs, of 680 billion yen ($4.51 billion) for the year ending in March, down from 793.7 billion yen last year.

Nippon Steel ( NISTF ), which acquired U.S. Steel in June in a $15 billion deal, said it excluded the business from its forecast for this fiscal year because "the current U.S. steel market conditions are significantly below the levels initially anticipated" in addition to cost rises due to equipment-related issues and "heightened uncertainty in the U.S. market."

Before the deal, U.S. Steel's steelmaking capacity was around 40% of Nippon Steel's ( NISTF ) 66 million tonnes a year available globally. Nippon Steel ( NISTF ) views U.S. Steel as a key part of its long-term strategy for reaching an annual steelmaking capacity of 100 million tonnes.

"U.S. Steel's current earnings structure is very fragile, but executing investments will be an extremely effective measure to improve profitability," Nippon Steel ( NISTF ) Vice Chairman Takahiro Mori told a press conference, reaffirming its plan to steadily push ahead with investments.

On Tuesday, U.S. Steel announced spending of $14 billion on a multi-year growth plan with Nippon Steel ( NISTF ), with $11 billion to be invested by the end of 2028.

Nippon Steel ( NISTF ), which steered the U.S. Steel deal through political and union opposition, expects potential synergies of $0.5 billion annually by 2030, it said.

"On top of decarbonisation requirements, the pledged capital expenditure in the U.S. would make it challenging for the company to keep dividends high," Jefferies said in a note. "Thus, we think that there is risk of a capital raise."

Nippon Steel ( NISTF ) posted a loss of 113.4 billion yen for the six months to the end of September, versus a profit of 243.4 billion yen in the same period a year earlier.

The steelmaker also said it expects to report a fiscal full year loss of 60 billion yen, 50% more than its previous forecast as it would book a 21 billion yen loss on the exit from the Usiminas steel manufacturing company in Brazil.

Nippon Steel's ( NISTF ) minority stake in Usiminas will be transferred to another shareholder, Ternium ( TX ), as the Japanese company plans to focus on its key regions: the U.S., India and Thailand instead, it said in its results presentation.

"The sale of Usiminas shares is intended to mitigate further impairment risks, as no significant recovery is expected in Brazil soon," Mori said.

($1 = 150.7800 yen)