UPDATE 3-Swedbank pins 2010 hopes on brighter economy

* Bank says a profit for full-year 2010 is "feasible"

* Q4 operating loss of 1.67 bln SEK, vs forecast 1.35 bln

* Loan losses narrow during Q4, Baltics weigh

* Says risk level is lower compared with year earlier

* Swedbank shares fall 2 pct (Adds CEO and analyst quotes, share price, details)

By Mia Shanley and Victoria Klesty

STOCKHOLM, Feb 9 (Reuters) - Swedish banking group Swedbank (SWEDa.ST) said a brighter global economy just might allow it to swing to a profit this year after heavy losses in the crisis-hit Baltic region weighed on fourth quarter results.

Swedbank, which counts its main markets as Sweden and the hard-hit economies of Latvia, Lithuania and Estonia, has paid a heavy price for lending to the Baltic region during years of red-hot growth.

Double-digit recession in the Baltics has led to huge loan losses for several Nordic lenders this year, although many say there are signs they may have seen the worst of the fallout.

"Given that the global macro economy continues to develop positively without substantial divergence, particularly in Latvia and Ukraine, a profit for the full-year 2010 is feasible," CEO Michael Wolf said in the results note.

Analysts in a Reuters poll have forecast a profit of 715 million crowns for the bank in 2010. [ID:nLDE6131YQ]

Swedbank was particularly upbeat about developments in Estonia, where it is the biggest player, although "problem areas" such as Latvia, Ukraine and Russia meant business remained risky after one of its most turbulent years ever.

As if to underline that point, data showed earlier on Tuesday that Latvia's economy shrank almost 18 percent in the fourth quarter from a year ago, more than the forecast 16 percent. [ID:nLDE618179]

Swedbank shares were down almost 2 percent at 64.60 crowns, underperforming the European banking sector index .SX7P which was up 1.5 percent by 1248 GMT.

Swedbank suffered a 1.67 billion Swedish crown ($224 million) operating loss in the fourth quarter, weighed down by a 352 million crown charge that mostly related to real estate. That was wider than the 1.35 billion forecast in a Reuters poll.

Swedbank will pay no dividend for a second year in a row and has already disappointed staff with plans to cancel all bonuses.

Swedbank and rival SEB (SEBa.ST) have taken the hardest hit in the Baltic region, but Nordea (NDA.ST), Danske Bank (DANSKE.CO) and DNB Nor DNBNOR.OL are also exposed.

Nordea and SEB are due to report fourth-quarter earnings on Wednesday with DnB NOR reporting on Thursday.

ASSET QUALITY

Swedbank, which at the end of the year had 169 billion crowns or -- roughly 14 percent of its total lending -- in the Baltics, said it had worked to cut its risk level and that business would remain challenging this year.

"I guess the big positive thing here is asset quality, which is not a complete surprise," said Nick Davey, analyst at UBS.

The bank said it would continue to work on improving its asset quality after posting fourth-quarter loan losses of 5.0 billion crowns -- smaller than expectations and an improvement after the 6.1 billion crown loan losses in the third quarter.

Growth in the bank's impaired loans will continue to level off, its chief risk officer said.

Still, analysts said Swedbank's net interest and trading income was weaker than expected in the fourth quarter, while costs were also slightly higher.

Wolf told Reuters he believed net interest income would not continue to deteriorate the way it did in 2009.

"We're reaching the bottom," he said. "We're not totally there, but we're getting close to it."

Net interest income has been weak for Nordic banks due to the region's low interest rate environment while trading income is also falling following a surge in volatility which spurred heavy trading mainly in the first half of last year.

Standard & Poor's said in a note investors would be enthusiastic about the improved asset quality and capital levels although there was caution over lower revenue generation.

For Swedbank, the strength of the Baltics will be key.

Sweden's central bank chief said recently the recession there may have bottomed out. [ID:nLDE6110EM]

Estonia's government has been talking up entry into the euro zone already next year while the political situation in Latvia has stabilised after parliament gave the government a mandate for further talks with international lenders. [ID:nLDE60R0JP]

Lithuania's government has forecast small growth this year. (Editing by David Cowell and Hans Peters) ($1 = 7.444 Swedish crowns)