Aug 9 (Reuters) - Illumina Inc cut annual profit forecast, in a sign that a funding crunch among its biotech and pharmaceutical clients is expected to weigh on sales for its genetic testing tools and diagnostics products.

Shares were down nearly 6% in extended trading on Wednesday.

Rising interest rates have squeezed funding for drug development and research programs among small biotech firms, especially in China.

The funding crunch has been exacerbated by the collapse of U.S. lender Silicon Valley Bank, a key investment banker in the biotech sector.

"We expect our second-half revenue to be negatively impacted by customers remaining more cautious in their purchasing, a more protracted recovery in China, and a larger-than-expected temporary decline in high throughput consumables as customers transition to NovaSeq X," said Interim CEO Charles Dadswell.

Higher-than-estimated demand for the production-scale sequencer, NovaSeq X, however, helped the U.S. genetic testing company surpass Wall Street estimates for second-quarter profit.

The San Diego, California-based company reported adjusted profit of 32 cents per share, compared with expectations of 2 cents per share, according to Refinitiv data.

Illumina expects full-year adjusted profit per share to be between $0.75 and $0.90, compared with its prior forecast of $1.25 to $1.50. The outlook reflects a tax expense impact of about $75 million.

The company is looking to save costs by cutting jobs and shut some offices to cushion the impact of sticky inflation, a strong dollar and an ongoing litigation related to its $7.1 billion repurchase of Grail in 2021.

It recorded total sales of $1.18 billion for the quarter ended July 2, compared with expectations of $1.16 billion.

Illumina was also engaged in a proxy battle with activist investor Carl Icahn and is looking for a new CEO after former chief Francis deSouza stepped down in June.

(Reporting by Pratik Jain in Bengaluru; Editing by Shilpi Majumdar)