UPDATE 2-Jyske Bank profit hit by $40 mln hedge fund provision
* 2011 pretax profit falls 40 pct to 601 mln DKK
* Results also hit by Greek debt writeoffs
* Court allows investors to bring class action lawsuit
* Bank calls the result "tolerable", shares up 1.7 pct (Releads, adds background)
COPENHAGEN/LONDON, Jan 26 (Reuters) - Jyske Bank , Denmark's second-biggest bank, posted a fall in profit after making a $40 million dollar provision against lawsuits brought by investors who had lost money in one of its hedge funds during the nadir of the credit crisis.
Jyske said on Thursday it had made a provision of 229 million Danish crowns ($40 million) against its potential liability after the Danish High Court allowed investors in the bank's Jyske Invest Hedge Markedsneutral fund to bring a class- action lawsuit.
The leveraged fund, which bought Danish mortgage bonds and covered bonds, lost around 800 million Danish crowns in performance terms from peak to trough in late 2008, around the time of the collapse of Lehman Brothers, although its performance has since improved, Chief Financial Officer Birger Krogh Nielsen told Reuters.
In 2009 Denmark's financial watchdog gave Jyske a rap on the knuckles over the way it sold the Markedsneutral fund, saying Jyske had not ensured that the advice it gave compensated for the "insufficient description" of the fund in the sales brochure.
Jyske said on Thursday that it disagreed with the court's decision and would try to bring the ruling before the Supreme Court, whilst it would also look at other legal measures. No-one at Jyske was available to comment further.
Jyske also took a writedown of 299 million crowns relating to Greek government bonds, knocking its full-year 2011 pretax profit 40 percent.
"2011 was a challenging and turbulent year for Jyske Bank," Chief Executive Anders Dam said in a statement.
Pretax profit dropped to 601 million crowns ($104.9 million) from 1.0 billion a year before, Jyske said.
It called the result "tolerable considering the economic situation and the adverse effect from special circumstances of just below 500 million crowns on the profit".
"Most recently, increased uncertainty about the debt situation in the euro zone and a potential Greek national bankruptcy prompted us ... to recognise the entire portfolio of Greek government bonds at market price," Jyske said.
Loan impairment charges and provisions for guarantees fell to 1.48 billion crowns from 1.58 billion, it added.
In a year with a generally falling demand for financing, the group's bank loans increased by 3 percent and deposits rose by 8 percent, it said.
Net interest income rose by 2 percent in 2011 and by 9 percent in the fourth quarter from the prior three months.
Dam said Jyske's financial position was robust in light of initiatives taken in 2011 to strengthen its earnings power, cut costs and optimise its capital structure.
Jyske shares rose 1.7 percent by 1556 GMT versus a 0.9 percent rise in Copenhagen's blue chip index. ($1 = 5.7305 Danish crowns) (Editing by David Holmes and Erica Billingham)