UPDATE 3-Game Group falls on fear demand has peaked

(Adds more analyst comment, updates shares)

By Mark Potter

LONDON, July 3 (Reuters) - British computer games retailer Game Group (GMG.L: Quote, Profile, Research) smashed first-half profit forecasts, boosted by new releases like Grand Theft Auto IV and Wii Fit, but its shares slumped on concern that demand has peaked.

Game shares, which had outperformed the UK general retailers index .FTASX5370 by about 85 percent this year, fell as much as 14 percent to a three month low of 225 pence on Thursday.

"A stunning trading update," said Shore Capital analyst John Stevenson, raising his full-year profit forecast by almost a quarter to 139.5 million pounds ($277 million).

"(But) unless we see new hardware launches into the UK market over the next 2 years, which appears unlikely at present, then we believe profits will peak this year and fall consistently over the following three years," he said, keeping a "sell" rating on the stock.

Game, which sells games, consoles and accessories from more than 1,200 shops in Britain and overseas, said profit before tax and one-off items would be at least 33 million pounds in the six months to July 31, beating analysts' forecasts of between about 15 million and 25 million pounds.

Sales at shops open at least a year were up 24.8 percent in the 22 weeks to June 28, boosted by what Chief Executive Lisa Morgan called an "unprecedented number of triple A software launches -- all in a period that would normally be a quiet time in our industry."

These releases included Mario Kart and Metal Gear Solid 4.