UPDATE 2-SIG shares tumble on profit warning as UK construction craters

* SIG warns on profit as market conditions deteriorate

* Shares fall to near three-year low

* Shares of rivals also drop on warning

* SIG to divest two businesses
(Adds analyst comment, context, sector peers, share price)

By Yadarisa Shabong

Oct 7 (Reuters) - Building materials supplier SIG Plc
warned on Monday about significantly lower profits due
to a weakening economic outlook in Britain and Germany, driving
its shares down as much as 26% and rattling nerves across the
construction industry.

British construction has slumped, weighed down by
uncertainty over Britain's departure from the European Union,
while the German economy has been slipping towards recession
even as construction remains buoyant.

SIG's warning sent ripples through the FTSE 350 Construction
and Materials sector, with shares of bigger rivals Travis
Perkins Plc, Howden Joinery Group Plc and
B&Q-Owner Kingfisher Plc all lower.

SIG said in its trading update that it had highlighted "a
number of key indicators pointing to further weakening of the
macroeconomic backdrop, notably in the UK and in Germany."

"This deterioration in trading conditions has accelerated
over recent weeks, and political and macro-economic uncertainty
has continued to increase," the company said.

Shares of SIG were down 22% at 92.95 pence as of 0718 GMT
after earlier flirting with a three-year low.

The Sheffield-based company expects much lower underlying
profitability in both its specialist distribution and roofing
merchant businesses compared to previous expectations.

It said it was taking actions to address the continuing
market weakness, but did not divulge specific details.

SIG reported underlying profit before tax of 75.3 million
pounds ($92.6 million) for the year ended Dec. 31, 2018.

Shore Capital analyst Graeme Kyle said the warning reflected
"political turmoil impacting construction project decisions in
the UK".

The company, which had repeatedly sounded warnings of a hit
from Britain's construction industry woes, also separately
announced the disposal of its air handling division and building
solutions business.

($1 = 0.8135 pounds)
(Reporting by Yadarisa Shabong in Bengaluru;
Editing by Bernard Orr and Edmund Blair)