* Q3 op profit up 15 pct at 960 mln euros, vs fcast 749 mln
* Repeats expects lower risk-adjusted profit in 2010
* Q3 net loan losses lower than expected
* Shares up 3.5 percent vs 0.5 percent for bank index
(Adds CEO quotes, graphic updates shares)
By Mia Shanley and Sven Nordenstam
STOCKHOLM, Oct 27 (Reuters) - Nordea, the biggest Nordic bank by market value, benefited from a strengthening regional economy and falling loan losses to beat forecasts with an unexpected rise in third-quarter operating profit.
The bank's shares hit their highest level in nearly a year after the results, and were up 3.5 percent at 73.35 crowns at 1007 GMT, while the European banking index was up about 0.5 percent.
Nordea Bank AB and its Nordic rivals have outperformed banks elsewhere in Europe this year, thanks to strong capital levels and the fact that loan losses in previously troubled markets such as the Baltic states have eased.
But Nordea did not adjust its full-year expectations for a fall in risk-adjusted profit because of reduced treasury and markets revenue.
Buoyed by rising interest rates in Sweden, Nordea posted record income, having now more than made up for slippage during the global financial crisis. As loan losses shrank, risk-adjusted profit came back to year-ago levels.
Operating profit for the period rose 15 percent to 960 million euros ($1.34 billion), while analysts had been expecting a 10 percent fall to 749 million in a Reuters poll.
"They are strong across the entire board, with beats on net interest income, net commission income and on the trading line," said Morgan Stanley analyst Henrik Schmidt.
"And you see loan losses coming down, so it is a good result. If you look at volume growth, they are growing very fast there as well."
The bank said conditions were improving.
"The macroeconomic recovery is particularly strong in the Nordic area, where we see these solid growth rates right now," Chief Executive Christian Clausen told a news conference.
"We have modest inflation, relatively strong public finances and improvements in the labour markets. Compared to the rest of Europe, the Nordic area is actually performing very well."
Net interest income, under pressure due to low official rates, reached 1.31 billion euros in the period. That topped a 1.27 billion forecast, while trading income of 446 million euros was 30 percent better than expected.
BASEL III
The bank said higher-than-average funding costs continued to eat into margins, a factor that has plagued most of the region's lenders as investors demand a bigger financial cushion. It also said the uncertain regulatory environment made it difficult to forecast future capital costs.
Nordea's core tier 1 capital ratio of 10.4 percent was up from 10 percent in the second quarter but at the lower end of peers, which have seen a run-up in their share prices as investors bank on potential buybacks and higher dividends.
Nordea's chief financial officer said the bank anticipated that under Basel III rules, its Core Tier 1 ratio would be 100 basis points lower.
Nordea's shares are up 8 percent since the start of the year, while the European banking index has fallen 7 percent.
However, rivals such as SEB and Swedbank have seen gains of 17 percent and 35 percent, respectively, as their Baltic exposures have become less costly.
Nordea, which also has business in Latvia, Lithuania and Estonia, but on a smaller scale, repeated that net loan losses in 2010 would be lower than in 2009.
Swedbank and Handelsbanken have already reported forecast-beating results. SEB and Norway's DnB NOR will release results on Thursday. (Editing by David Cowell and Will Waterman) ($1 = 0.7166 euro)