UBS not yet out of the woods -Swiss regulator

* UBS situation better than yr ago, FINMA deputy chief

* Two, three quarters needed to recover

* Return to profit must be for bank as a whole

ZURICH, Oct 8 (Reuters) - The situation at UBS (UBSN.VX) (UBS.N), which was rescued by the Swiss government last October, has improved compared with a year ago, but the bank giant is not yet out of the woods, according to a top Swiss regulator.

"Compared with last year (UBS) is in a much better situation. But it is not yet out of the woods," Daniel Zuberbuehler, Deputy Chairman of Swiss financial regulator FINMA, said in an interview with Swiss radio DRS.

"And that will be when it returns to profit. We have to wait for two to three quarters, with good profits ... but not only in the investment bank, but the whole bank," he added.

The regulator said that the bank has stabilised and was "no longer in intensive care" as one year ago, but added that there was still work to be done.

UBS, which had made billion of Swiss francs of writedowns on toxic U.S. subprime papers, accepted a cash injection of 6 billion francs ($5.85 billion) by the state in the aftermath of the Lehman Brothers collapse.

The Swiss government, which had acquired a 9 percent stake in the bank in exchange, sold its UBS holdings in August shortly after the bank settled a damaging U.S. tax row.

UBS has posted its first post-crisis operating profit in the second quarter of this year but it is yet to return to net profit. ($1=1.025 Swiss Franc) (Writing by Lisa Jucca)