UPDATE 3-Danske Q3 profits fall, loan writedowns to stay high

* Q3 pretax profit falls to 1.1 bln DKK, beating forecast

* Bank says sees loan impairments staying high in Q4

* Says sees activity level in Q4 unchanged from Q3

* Shares end down 3.7 percent

(Adds details, quotes; updates share price)

By Peter Levring and John Acher

COPENHAGEN, Nov 3 (Reuters) - Denmark's biggest financial group, Danske Bank (DANSKE.CO) said loan impairment charges were likely to stay high for some time after reporting a smaller-than-forecast drop in earnings for the third quarter.

Earnings were helped by higher-than-expected trading income and slightly lower operating costs than forecast but were burdened by heavier-than-forecast loan impairment charges, which contributed to knocking the bank's shares.

Pretax profits fell to 1.1 billion Danish crowns ($218 million) in July-September from 1.58 billion in the same quarter last year.

The result beat an average expectation of a drop to 843 million crowns in a Reuters poll of analysts whose forecasts ranged widely from a loss of 187 million to a pretax profit of 2.21 billion.

"The outperformance was driven by strong net trading results, which continued to hold up better than expected," Frank Braden, analyst at Standard & Poor's Equity Research, said in a note to clients.

Danske Bank shares ended down 3.7 percent at 117.50 crowns, underperforming a 2.8 percent drop in the DJ Stoxx European banking sector index .SX7P. But the stock recovered from a session low of 113.50 crowns.

"Loan impairment charges are expected to remain high in the fourth quarter, reflecting the general economic climate," Danske Bank said in a statement.

"We have not made any prognosis for our impairment charges in 2010, (but) we believe the expectation should be that there will be relatively high impairment charges for quite a number of quarters to come," Chief Executive Peter Straarup told analysts in a conference call.

Chief Financial Officer Tonny Thierry Andersen said writedowns peaked in the first half of 2009.

He told Reuters that Danske Bank had no plan to issue new shares to boost capital base.

"We are not going to issue new shares because our capital structure is strong," Andersen said.

Straarup added: "A rights issue is not attractive nor realistic."

Credit Suisse analyst Andreas Hakansson said the report was better than expected but added: "The negative story is that writedowns are rising relatively quickly in Denmark."

Loan impairment charges grew to 6.16 billion crowns in the third quarter from 1.78 billion in the same quarter last year, exceeding analysts' average forecast of 5.79 billion crowns.

Danske said it expected the activity level to be unchanged in the fourth quarter, and net interest income and net fee income to be at roughly the same levels as in the third quarter.

"We are seeing the first signs of macroeconomic stabilisation," Straarup said in the statement.

TRADING INCOME BOOST

Net trading income rose to 3.89 billion crowns in the third quarter from 368 million in the year-ago period.

"Danske Markets took advantage of favourable market conditions and its strong position in the Nordic region to boost income," Danske Bank said.

"I think trading income will continue to perform well but not at the same level as in the previous three quarters," Straarup told Reuters.

Danske Bank was the last of the "Big Six" Nordic banks to report third-quarter earnings.

Its report followed better-than-expected results from Nordic rivals Nordea (NDA.ST), Sweden's Handelsbanken (SHBa.ST) and SEB (SEBa.ST) and Norway's DnB NOR DNBNOR.OL, and hefty losses from Swedish Swedbank (SWEDa.ST).

Smaller domestic rivals Jyske Bank (JYSK.CO) and Sydbank (SYDB.CO) have also posted above-forecast earnings. ($1=5.038 Danish Crowns) (Reporting by John Acher and Peter Levring; editing by Karen Foster)