* Mizuho Q3 net profit doubles to 80.3 bln yen
* Mizuho Q3 profit compares with Y191.9 bln in Q2
* Mizuho keeps full-year net profit forecast at 500 bln yen
* Shares end off 2.5% before results vs Nikkei's 1.2% fall
* Large profit growth unlikely this year and next -analyst (Adds more information, fund manager comment)
By Taiga Uranaka
TOKYO, Jan 31 (Reuters) - Mizuho Financial Group's profit shrank in October-December to less than half the preceding quarter's figure on smaller bond trading gains, underscoring the bleak outlook for growth at Japanese banks due to slack loan demand.
After riding the upswing in bond markets to strong profit growth in the prior two quarters, Mizuho's earnings slumped in the absence of those gains, and it stuck by its forecast for the full year to March.
"We are not likely to see large growth this year and the next," said Chikako Horiuchi, analyst at Fitch Ratings in Tokyo.
"We are not in an environment where a sharp increase in interest margin and loan balance can be expected. They have few choices but to look to overseas for growth drivers," she said.
Net profit of Mizuho, Japan's second-largest bank, doubled to 80.3 billion yen ($978.1 million) in the third quarter from a year earlier, according to Reuters' calculations from nine-month results, thanks to smaller credit costs on strength of fewer bankruptcies among borrowers.
That compared with forecasts of 100 billion yen by Citigroup Global Markets and 87 billion yen by Credit Suisse.
Mizuho's year-on-year comparison was also boosted by bigger fee revenues as the bank sold more mutual funds and other financial products to retail customers.
For the first six months of the current financial year, Mizuho and its rivals saw their earnings boosted by a sharp rise in prices of U.S. Treasury and Japanese government bonds, although bond prices showed a sharp reverse late last year.
For the year ending in March, the bank retained its net profit forecast of 500 billion yen, up from 239.4 billion yen a year earlier and in line with an average estimate of 507.3 billion yen in a poll of 14 analysts by Thomson Reuters I/B/E/S.
Last week, No. 3 Japanese bank Sumitomo Mitsui Financial Group posted a 21 percent fall in net profit on poor demand for loans and bond trading losses.
OVERSEAS EXPANSION
Mizuho and SMFG continued to see their net interest income, or profit from lending, shrink in the last quarter as loan demand remains weak with business and households still skittish about spending amid Japan's prolonged deflationary trend.
Like its rivals, Mizuho CEO Takashi Tsukamoto has been trying to woo investors by stepping up its overseas expansion with a focus on Asia, where the bank hopes to tap the region's growing economy by financing infrastructure projects and local business enterprises.
But it might be some time before overseas operations become a main profit driver, as Tsukamoto also said the bank would pursue the overseas expansion basically in an organic way.
Compared with Mizuho, Japan's largest bank Mitsubishi UFJ Financial Group has been more aggressive and agreed to buy project finance loans worth some $5 billion from the Royal Bank of Scotland late last year.
But some investors remain unimpressed with Japan's top banks' progress so far.
"They are proceeding in the right direction in that they are shifting focus to overseas, but their loans outside Japan are not increasing as fast as expected," said Shigeo Sugawara, fund manager at Sompo Japan Nipponkoa Asset Management.
"(At all of the three top banks), domestic operations still account for the bulk of their businesses. It's too early to make an investment decision on them based on their overseas growth potential," he said.
Mizuho shares ended down 2.5 percent on Monday ahead of the results, compared with the benchmark Nikkei average's 1.2 percent drop. The shares fell 8 percent last year, underperforming a 3 percent fall in the index. ($1=82.10 Yen) (Editing by Edmund Klamann and Muralikumar Anantharaman)