UPDATE 3-Nordea Q2 in line, sticks to cautious outlook

* Q2 operating profit 730 million euros, vs forecast 721 mln

* Loan losses continued to fall from previous quarter

* NII inches up from first quarter

* Keeps outlook for lower risk-adjusted profit in 2010

* Nordea shares flat, underperform European banking index

(Adds CEO quote, share price)

By Mia Shanley and Victoria Klesty

STOCKHOLM, July 21 (Reuters) - Nordea (NDA.ST), the top Nordic bank by value, gave a more optimistic view of its main markets on Wednesday as second-quarter loan losses fell but stuck by its forecast of lower core profit this year than last.

Nordea's results followed a mixed set of earnings for Swedish banks so far. Rival SEB's (SEBa.ST) operating profit beat analyst forecasts last week while higher funding costs dragged on Handelsbanken (SHBa.ST). [ID:nLDE66E0V5]

Nordea kept its outlook for lower risk-adjusted profit this year as it reported an operating profit for the period of 730 million euros ($943 million), just topping a forecast for 721 million euros in a Reuters poll. [ID:nLDE66D1KD]

Nordea shares were largely unchanged at 0956 GMT, underperforming the wider Stockholm bourse .OMXS30 and the STOXX Europe 600 banking index .SX7P which were up 1.5 percent and 1.6 percent respectively.

"The headline result was not that fantastic, but the underlying trend was on the positive side," said Matti Ahokas, analyst at Handelsbanken.

"Loan losses are coming down everywhere, and lending growth is clearly above what we have seen in other Nordic banks so far, which should be good for revenues going forward." <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ here

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Chief Executive Officer Christian Clausen said that the outlook had improved for Nordic economies, but Europe's debt crisis had increased risks and stressed funding markets.

With strong double-digit capital ratios -- among the highest in Europe -- and efforts to cut risk exposure in all markets, Nordic banks are seen as coming out on top of a European Union (EU) test of the region's financial system.

"I can say that the test is absolutely no problem for Nordea," Clausen told Reuters. "We will pass with a wide margin, and I can even say that it will have very limited impact on our ratios and our capital position, even in the stressed scenario."

Still, analysts said Nordic banks would feel waves from any negative reaction regionally should the EU tests highlight big problem areas.

"The Nordic countries are small, open economies, and Nordea is open to all of them," Fridtjof Berents, an analyst at Arctic Securities, said, adding that Nordic banks were tapping the same funding markets as regional peers.

Sweden's Financial Supervisory Authority will release the results for Swedish banks on Friday.

ON THE MEND

A year ago, many Nordic banks were struggling with souring loans and talk of a possible devaluation in the recession-hit Baltic region following a long stretch of red-hot growth.

Now, Nordic lenders are seen as a safe haven for investors worried about debt problems in southern Europe.

Recent results show the worst is past in the Baltics, with Estonia recently getting a green light to join the euro zone next year, and Nordic economies are picking up rapidly.

Nordea repeated it expected lower credit losses this year as it posted a 245 million euro loan loss in the second quarter, lower than forecast and smaller than the first quarter.

Nordea's net interest income -- a sore spot for most banks over the past year due to low interest rates and high funding costs -- was a touch higher than the first quarter and right in line with expectations at 1.2 billion euros.

Swedbank (SWEDa.ST), the biggest bank in the Baltics, will release results on Thursday.

Nordic bank shares .TBNKF have climbed by more than 6 percent since the end of the year while the STOXX Europe 600 banking index has fallen 12 percent. (Additional reporting by John Acher in Copenhagen; Editing by Dan Lalor, Sharon Lindores) ($1 = 0.7739 euro)