UPDATE 2-Monte Paschi branch sale worries hit shares

* Q3 net 69.3 mln euros, beats I/B/E/S poll

* Tier 1 7.6 pct at end-September with gov't help

* Shr Net interest income at 913.3 mln euros

(Adds company comments, share price)

By Ian Simpson

MILAN, Nov 13 (Reuters) - Shares in Italy's Banca dei Monte di Paschi SpA (BMPS.MI) fell on Friday on market uncertainty over the planned sale of branches designed to help shore up its weak capital ratios.

Monte dei Paschi, the world's oldest bank, posted net income of 69.3 million euros ($103.1 million), down 42 percent from the year before. Net profit was ahead of a Thomson Reuters I/B/E/S average forecast of 37.5 million euros.

General Manager Antonio Vigni said Monte dei Paschi, Italy's fourth-biggest bank by market value, was still in talks with potential buyers about sale of 135 branches as part of an antitrust ruling.

"We are still doing our due diligence with a number of counterparties, we confirm that this process is still going on. We expect to have positive news by year's end," he told a conference call with analysts.

He did not identify potential buyers. The shares were down 1.53 percent at 1.29 euros at 1218 GMT as the DJ Stoxx banks index .SX7P was up 0.26 percent.

"The problem is that they did not give any update on the sale, and their capital position is relatively weak," said one analyst who asked not to be named.

CAPITAL AID

Vigni said the Tuscan bank expects to conclude talks with Italy's Treasury on 1.9 billion euros in capital-boosting aid by the end of the year.

The Tier 1 capital ratio stood at 6 percent at the end of September, at the low end among European banks, and at 7.6 percent when government aid is factored in. The Tier 1 figure is up 89 basis points from the end of 2008.

Britain's Barclays Plc (BARC.L), which is expanding in western Europe, is in talks to buy 135 branches at about 4 million euros each, people familiar with the matter said last month.

Italy's Banca Carige SpA (CRGI.MI) has expressed interest in 20 branches, a source close to the deal said last month. Intesa Sanpaolo SpA (ISP.MI), Italy's biggest retail bank, is also in talks to buy 50 branches for 125 million to 150 million euros, sources said last month.

The bank confirmed its outlook for a downturn of less than 5 percent in net interest income for the year and a drop of 4-5 percent in costs.

Net interest income was up 0.4 percent to 913.3 million euros, breaking a two-quarter downturn as Italy struggles to emerge from its worst economic downturn since World War Two.

Income from commissions and net interest income rose to 1.39 billion euros from 1.38 billion euros in the second quarter, with loans up 0.8 percent. (Reporting by Ian Simpson; Editing by David Cowell) ($1=.6722 Euro)