UPDATE 2-Hudson City earnings rise, top Wall Street view

* Q3 EPS $0.27; Street view $0.26

* Shares rise 1 percent (Adds financial details, analyst comment, stock price and byline)

By Juan Lagorio

NEW YORK, Oct 21 (Reuters) - Hudson City Bancorp Inc (HCBK.O), the largest U.S. savings and loan, reported higher quarterly earnings on Wednesday, beating expectations, as gains in mortgage lending and deposits trumped a jump in bad loans.

The results suggest the Paramus, New Jersey-based parent of Hudson City Savings Bank is holding its ground amid the recession thanks to its focus on making mortgages and collecting deposits rather than dabbling in riskier products such as construction loans or subprime mortgages.

Third-quarter net income rose to $135 million, or 27 cents per share, from $122 million, or 25 cents per share, a year earlier.

Analysts on average expected 26 cents per share, according to Thomson Reuters I/B/E/S.

Hudson City set aside $40 million for loan losses in the quarter, up from $32.5 million in the second quarter.

Net charge-offs rose to $13.2 million from $9.6 million in the second quarter, and nonperforming loans increased to 518 million from $431 million.

"It should come as no surprise that Hudson City's credit losses continue to rise. However, its credit quality remains one of the best in our coverage universe," Morgan Stanley analysts wrote in a research note.

"Despite some investor concerns about deterioration in New York-area home prices, we feel comfortable that Hudson's credit losses will remain well below its peers by a sizable margin."

Net interest margin rose to 2.30 percent from 2.17 percent in the second quarter as rates fell faster on deposits than on mortgages.

Hudson City offers jumbo loans, typically in mid-six-figure amounts, to borrowers who plan to live in their homes and can put down 20 percent.

The company's shares rose 1 percent to $13.26 in morning trading. (Reporting by Juan Lagorio; Editing by Lisa Von Ahn)