WELLINGTON, Jan 28 (Reuters) - New Zealand's Fonterra...

WELLINGTON, Jan 28 (Reuters) - New Zealand's Fonterra Co-Operative Group Ltd (FCG) on Thursday lowered its forecast dairy payout to farmer shareholders, citing sluggish global demand.

Fonterra will pay its shareholders NZ$4.15 per kilo of milk solids in the current season versus a prior forecast of NZ$4.60. The move strips around NZ$800 million out of farmer income.

There had been growing concern that the world's largest dairy exporter would be forced to lower the forecast because of weak global prices.

Until recently, dairy was the backbone of New Zealand's economy, representing around 25 percent of exports. But dairy prices have tumbled by more than half since early 2014, hurt by China's economic slowdown and global oversupply.

Fonterra Chairman John Wilson said that global economic conditions were challenging and having an impact on demand for a range of commodities, including dairy.

"Key factors driving dairy demand are declining international oil prices which have weakened the spending power of countries reliant on oil revenues, economic uncertainty in developing economies and a slow recovery of dairy imports into China," he said.

Wilson said that in addition, the Russian ban on European Union dairy imports continues to push more product on to the world market.

The weaker payout will add to pressure on the New Zealand dairy sector as it is below estimated break-even levels of NZ$5.28.

The central bank has flagged the sector as a risk to financial stability and earlier this week Fitch Ratings agency downgraded its view for New Zealand's banking industry over dairy debt woes.

Earlier on Thursday, the central bank held rates at 2.5 percent but said more easing may be needed.

The bank cited several risks around its outlook, including dairy prices.

Looking ahead, Chief Executive Theo Spierings said he still expects dairy prices to recover later this year but "the time frame for supply and demand rebalancing has moved further out and largely depends on a downward correction in EU supply in response to the lower global prices."

Spierings said the prices are "clearly unsustainably low for farmers globally and cannot continue in the longer term."