REFILE-UPDATE 1-OCBC Q2 net up 10 pct, signals banking recovery

* OCBC net profit at S$466 mln; forecast S$356 mln

* Says worst may be over for global economy, mkts

* Shares down ahead of earnings on Q3 insurance hit
(Corrects Reuters Instrument Code in first paragraph)

By Saeed Azhar

SINGAPORE, Aug 3 (Reuters) - OCBC (OCBC.SI), Singapore's
smallest listed bank, signalled the worst may be over for the
banking sector as it posted an unexpected 10 percent rise in
quarterly profit fueled by strong trading gains and loan
margins.

Shares of Oversea-Chinese Banking Corp fell ahead of the
result after it shocked investors with a late Friday
announcement that it will take a one-time charge in the third
quarter linked to its insurance arm that is redeeming policy
holders burnt by risky debt products.

But OCBC CEO David Conner said on Monday there is growing
consensus the worst is over for the global economy and
financial markets, although the pace of recovery remains
uncertain.

For the last quarter, OCBC's result was broadly in line
with several Asian banks, which have escaped a sharp
deterioration in credit quality and are seeing improving
prospects for loan growth as the region crawls out of an
economic slump.

"It signals that the revenue is coming back from the
non-interest side and things are stable as far as
non-performing loans are concerned," said Brian Hunsaker,
banking analyst at Fox-Pitt Kelton in Hong Kong. "Certainly you
can expect the same trend for the other banks."

April-June net profit rose to S$466 million ($325 million)
from S$425 million a year ago, OCBC said.

Analysts had predicted a net profit of S$356 million,
according to the average of six forecasts compiled by Reuters.

OCBC kicked off the earnings season for Singapore banks.
Second-ranked United Overseas Bank (UOBH.SI) will announce
earnings on Wednesday and DBS (DBSM.SI), Southeast Asia's
biggest bank, on Friday.

"We are more bullish compared to a month ago as more signs
have emerged in the past month to fuel the market's confidence
on the outlook ahead," Alistair Scarff, research analyst at
Bank of America-Merrill Lynch, said in a note ahead of the
earnings.

"Recent second quarter GDP and property data reaffirm that
the economy is already past the trough. Meanwhile, our own
channel checks suggest that asset quality is holding up better
than we thought."

BAD DEBT

Bad debt charges rose to S$104 million in the
second-quarter from S$55 million a year earlier, but below
S$197 million recorded in the first quarter.

OCBC's net interest income rose 5 percent from a year ago
to S$710 million in the last quarter, as interest rate margins
widened by 5 basis points to 2.29 percent.

But non-interest income, which includes commissions and
fees on investment products such as mutual funds, surged 37
percent.

OCBC saw an almost four times higher contribution from its
insurance arm Great Eastern (GELA.SI) of S$125 million from
S$33 million a year earlier, while trading income almost
tripled.

OCBC shares were down 1.4 percent at the midday break,
after slumping by as much as 2.7 percent on news that it will
take a S$218 million hit in its third quarter linked to Great
Eastern.

Shares of OCBC are up 54 percent so far this year,
underperforming DBS's 65 percent surge, but outperforming UOB's
35 percent rise.

Singapore's benchmark Straits Times Index .FTSTI is up by
half so far this year.
(Editing by Neil Chatterjee)