* Q2 net profit 100 mln euros vs Rtr poll avg 125 mln
* Q2 pretax profit 257 mln euros vs 222 mln euro in poll
* Non-core asset portfolio cut to 92 bln euros
* Ukraine and Russia a special focus for risk management
* Shares up 2.8 percent (Adds analyst quotes, share price)
By Arno Schuetze and Thomas Atkins
FRANKFURT, Aug 7 Commerzbank, Germany's second biggest lender, accelerated its turnaround by selling unwanted assets and posted a rise in second quarter earnings as it set aside less money to cover bad loans.
The quick reduction in "bad bank" assets puts the financial crisis further behind a lender that needed an 18 billion euro government bailout in 2009.
The bad bank contains investments stemming from an expansion drive in areas such as commercial real estate that ultimately backfired for Commerzbank when the crisis hit.
Commerzbank bank shares rose 2.8 percent as analysts pointed to the successful revamp.
"The big fear from a year ago is gone. At the time, Commerzbank would have been in serious trouble in case of an external shock, but now it has restructured and that sword of Damocles is gone," said Ingo Frommen from LBBW.
The division that contains unwanted commercial real estate, ship and public finance assets shrank to 92 billion euros in the quarter, down 32 percent from a year earlier.
Commerzbank again improved its target for cutting back the assets. It now aims to reduce them to 67 billion euros by 2016, down from an earlier target of 75 billion euros.
The German bank downplayed any threats from its exposure to Russia, which fell to 5.4 billion euros in the second quarter from 6.1 billion in first, but said the region remained a "particular focus" for managing risk.
Exposure to Russia was mostly trade financing for German companies, which was covered by export insurance, or lending to big Russian corporations, which was well collateralised, Commerzbank Chief Financial Officer Stephan Engels said.
"The recessionary trends in Russia and Ukraine have not had a noticeably detrimental effect on exports," the company said in its quarterly report.
TURNAROUND ON TRACK
In the second quarter, Commerzbank booked a net profit of 100 million euros, missing an analyst poll of 125 million euros but higher than a year earlier, when it earned 40 million euros.
Significantly improved earnings in retail banking and Eastern European operations compensated for weaker investment banking income in the quarter.
Commerzbank's Mittelstandsbank unit, which caters to Germany's raft of medium-sized companies, saw operating earnings rise by 24 percent to 267 million euros as lower provisions for bad loans compensated for weak demand.
But in investment banking, trading revenues declined and earnings decreased by 29 percent, dragged down by a fall in revenue from buying and selling bonds and currencies.
By contrast, buoyant equity markets and a surge in corporate debt issues have led to better-than-expected investment bank fees in Europe, helping Deutsche Bank, UBS, Credit Suisse, Barclays, and others outperform U.S. peers in the second quarter.
Since the global financial crisis Commerzbank has been cutting costs and selling assets in a bid to return to health, with the bank having turned a corner in 2013.
The lender is widening the scope of its cost-cutting programme and plans to shed more than 450 jobs on top of the 5,200 already announced, people familiar with the matter said last month. (Editing by Thomas Atkins and David Clarke)