UPDATE 2-Danske Bank eyes dividend after loan losses shrink
* Q2 pretax profit 2.7 bln DKK vs forecast 2.4 bln
* Shares jump 8 percent, hitting 7-week high
* Loan losses nearly halve from previous year
* Trims 2013 guidance on weak loan demand (Recasts, adds CEO quotes)
By Teis Jensen and Mia Shanley
COPENHAGEN/STOCKHOLM, Aug 1 (Reuters) - Danske Bank , Denmark's biggest financial group, rekindled hopes on Tuesday it might pay a dividend for 2013, reporting higher than forecast profits and a sharp drop in loan losses in an improving domestic economy.
Shares in the bank, which has not paid a dividend for five years as it suffered from an economic downturn in Denmark and another important market Ireland, leaped to a seven-week high of 111.60 Danish crowns - up 8 percent on the day.
Its plans to restart payouts this year were thrown into doubt in June when the country's financial regulator asked it to use tougher measures to calculate risk in its corporate loan book.
But the quarterly result - which showed loan impairments nearly halving from a year ago - was seen as a solid sign that the bank is on the road to recovery and is generating enough returns to resume payouts.
"As it looks now I hope we will pay out a dividend," CEO Eivind Kolding told Reuters.
Jyske Bank said Danske was on track for improved earnings, dividends and even larger payouts for 2014.
"With this result we see the case for Danske Bank as intact," the bank wrote in a note to clients.
Danish banks have suffered from a burst property bubble as well as a struggling agriculture sector that has left Denmark teetering on the edge of recession for the past year.
Danske has struggled as a result to recover as quickly as its Nordic peers, its single-digit return on equity comparing with double-digit profitability at Swedish banks.
The bank was cautious about the outlook for growth, saying that weak loan demand and turbulent markets had weighed on earnings. It now expects to have a net profit in a range of 6.5 billion to 9.0 billion crowns, down from a previous guidance for 7.5 billion to 10.0 billion.
But there are also signs that brighter days lie ahead.
Danske, like rival Nordea, said the situation in Denmark appeared to be stabilising thanks to a housing sector recovery and an improved job market.
Loan impairments were just 924 million crowns in the quarter - far below analyst expectations for 1.5 billion - as pretax profit rose to 2.68 billion Danish crowns ($477 million), beating an average 2.36 billion forecast by analysts.
"The report is a mixed bag of sweets, but it is a positive surprise on the bottom line," said Jesper Christensen from Alm. Brand Bank. "All in all the report points in a positive direction."
Danske shares were up 8 percent by 01006 GMT, compared with a 2 percent rise in both the Copenhagen stock exchange's main stock index and the benchmark EuroStoxx 600 Banks . ($1 = 5.6145 Danish crowns) (Additional reporting by Ole Mikkelsen, writing by Mia Shanley; editing by Patrick Graham)
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