* Q3 net profit HK$1.004 bln vs f'cast HK$938 mln
* Average daily turnover fell 27 pct in Jan-Sept
* Shares down 0.4 pct at midday break, in line with market
* Shares up 20 pct in past 3 months, beating big board
HONG KONG, Nov 7 Hong Kong Exchanges and Clearing Ltd, the world's No.2 exchange operator by market value, beat estimates with a 19 percent drop in third-quarter net profit, with overall performance hit by a sharp decline in trading volumes and a pullback in new listings.
HKEx, which announced the acquisition of the London Metal Exchange in June to lower its reliance on equities trading, said it was working diligently towards closing its first major overseas purchase.
"So far, no major issues have been identified," HKEx's banker-turned Chief Executive Charles Li said in statement, adding that an integration management office has been set up to spearhead the preparation for Day-1 operations.
HKEx said it made a net profit of HK$1.004 billion ($129.5 million) in July-September, down from the HK$1.24 billion earned a year earlier. This compares with expectations for HK$938 million, according to data from Thomson Reuters I/B/E/S.
Average daily turnover, a key determinant of exchange income, fell 36 percent in the third quarter to HK$46.4 billion, the company said in a statement. For the nine months ended September, turnover dropped 27 percent.
China's economic slowdown and the weak performance of big IPOs last year has seen Hong Kong deal volumes tumble 82 percent for the year to date, according to Thomson Reuters data, hurting HKEx's revenues. High profile names to delay offerings in Hong Kong, which not so long ago was the world's IPO capital, include luxury jeweller Graff Diamonds.
Other Asian bourses also put in a weak performance in the latest quarter with Singapore Exchange Ltd's net profit falling 15 percent.
HELP FROM THE FED
HKEx stock ended the midday trading break down 0.4 percent at HK$129.15, mirroring a decline in the benchmark Hang Seng share index. The shares have risen over 20 percent in the past three months, outpacing a 12 percent rise for the Hang Seng, on signs the latest round of quantitative easing from the U.S. Federal Reserve is encouraging fresh money inflows into Hong Kong.
A series of new rules to restrict foreign purchases and discourage speculation in Hong Kong's red-hot property market has also raised hopes that more money will flow into the stock market.
"We expect the equity markets to continue benefiting from these inflows, particularly in view of limited investability in the residential markets as policy measures begin to tighten further," JP Morgan analyst Harsh Modi said before the earnings release.
Led by former JP Morgan China Chairman Charles Li, the Hong Kong Exchange is semi-government run, with the Hong Kong authorities appointing six of the board's 13 directors and holding 5.8 percent of its shares.
Li is best known for being one of the lead bankers who advised Chinese oil major CNOOC Ltd on its failed $18.5 billion acquisition of U.S. oil producer Unocal in 2005.
($1 = 7.7502 Hong Kong dollars) (Reporting by Kelvin Soh and Denny Thomas; Editing by Edwina Gibbs)