* Intesa Sanpaolo confirms outlook for full-year net
* Monte Paschi net interest income falls, set-asides up
* Intesa SP stock hits year high, Monte Paschi shares fall
* Banco Popolare H1 net drops 48 percent (Adds Banco Popolare, other bank results, CEO quotes)
By Ian Simpson
MILAN, Aug 28 (Reuters) - Intesa Sanpaolo SpA, Italy's biggest retail bank, posted a higher-than-expected second-quarter net profit on Friday, joining a raft of European lenders helped by revived trading.
But shares in rival Banca Monte dei Paschi di Siena SpA, the world's oldest bank, slumped after it reported a quarter-on-quarter fall in revenue during Italy's worst recession since World War Two.
Among a clutch of other banks reporting results, Banco Popolare, fresh from a buyout of loss-making affiliate Banca Italease, joined Monte dei Paschi with a quarter-on-quarter drop in net interest income. The Verona bank's net profit fell 48 percent in the first half.
Intesa Sanpaolo, Europe's fifth-biggest bank by market value, posted net income of 513 million euros ($736.6 million), easily beating the average forecast in a Reuters poll of 10 analysts. The bank also reiterated its net profit forecast for the full year.
"The word with us is, and will remain, sustainable profitability," Chief Executive Corrado Passera told a conference call with analysts.
The bank will decide in September whether to go ahead with 4 billion euros in bonds under a government anti-crisis scheme aimed at shoring up banks' capital, he said.
Passera also was confident Intesa Sanpaolo would not have to pay an antitrust fine because of shareholder pact between France's Credit Agricole SA and Assicurazioni Generali, Italy's biggest insurer.
Intesa Sanpaolo joined many European banks with surging trading profits as financial markets revived from a global downturn. Trading profits were 439 million euros, up more than 300 percent from the first quarter.
"Quality seems to be everywhere," Deutsche Bank analysts said of Intesa Sanpaolo's results.
Credit Agricole, France's biggest retail bank, reported higher-than-expected net profit on Thursday, helped by its investment banking, retail bank and asset management units.
Italy's biggest bank, UniCredit SpA, also reported a better-than-expected second-quarter net profit early this month on improved trading profit.
INTESA SHARES RISE
Shares in Intesa Sanpaolo ended up 2.43 percent at 3.055 euros, outpacing a rise in the DJ Stoxx banks index.
Monte dei Paschi closed down 3.06 percent at 1.487 euros, weighed by a 3 percent drop in net interest income from the first quarter that overshadowed strong cost-cutting.
Although Italian banks have been largely immune from the world credit crunch, Monte dei Paschi and Intesa Sanpaolo said they had improved Tier 1 ratios, a key capital measure, from the end of 2008. Italian banks overall have Tier 1 ratios well below the European average.
Monte Paschi has signed up for about 2 billion euros under government capital-boosting programme that at 12 billion euros is dwarfed by other countries' bank rescue plans.
Banco Popolare is the only Italian bank to have issued bonds under the scheme, for 1.45 billion euros.
Among smaller banks, Banca Popolare dell Etruria e del Lazio SC reported a 2.3 percent rise in net profit as increasing net interest income offset worsening credit quality.
Credito Emiliano SpA, based in the northern city of Reggio Emilia, reported an 84 percent drop in net profit. (Reporting by Ian Simpson; Editing by Erica Billingham and Rupert Winchester) ($1=.6964 Euro)