UPDATE 2-Industrial Alliance profit down, stock rises

* EPS of C$0.63 vs C$0.68 expected by analysts

* Says investments, markets cut profit by C$0.24

* Shares up 3.5 pct at C$26.08 (Adds details, comment from conference call)

TORONTO, Nov 5 (Reuters) - Profit fell 13 percent at Industrial Alliance Insurance and Financial Services (IAG.TO) in the third quarter, as stock market declines and some poorly performing bonds hurt income.

But, all told, executives said they were satisfied with the results, given market conditions and problems facing financial companies in general.

Industrial Alliance shares were up 3.5 percent on the Toronto Stock Exchange, while the S&P/TSX financial index of banks, insurance companies and asset managers was down 1.4 percent.

The Canadian insurance and wealth management company said on Wednesday that net income was C$51.2 million ($44.5 million), or 63 Canadian cents a share, in the three months ended Sept. 30. That was down from C$59.1 million, or 73 Canadian cents a share, in the same 2007 period.

Impaired credit securities and the stock market downturn reduced earnings by C$19.6 million, or 24 Canadian cents a share, the company said.

Analysts had expected a profit of 68 Canadian cents a share before items, according to Reuters Estimates.

Industrial Alliance, based in Quebec City, said losses on investments, including bonds of U.S. insurer AIG (AIG.N), cut net income by 11 Canadian cents a share, while the stock market downturn cut EPS by another 13 Canadian cents.

Chief Executive Yvon Charest told a conference call that a key regulatory capital ratio was at 200 percent, or at the top end of its target range. Capital ratios have been in the spotlight in recent weeks, as investors worried that some big insurance companies might need to shore up their regulatory capital levels to cover future payments to policyholders.

Even if Toronto stocks fell a further 30 percent from their levels at the end of September, the company's capital ratio would still be within an acceptable range, Charest said, calling this "reassuring."

The company, Canada's fourth biggest publicly traded life insurer, said premiums and mutual fund deposits rose 6 percent to C$1.37 billion in the third quarter.

It sells and manages the IA Clarington family of mutual funds, and announced a deal this week to buy DundeeWealth Inc's (DW.TO) network of 340 mutual fund advisers and 70 insurance advisers in the province of Quebec.

Industrial Alliance shares were up 88 Canadian cents a share at C$26.08 on Wednesday afternoon, but they have fallen about 39 percent so far this year. ($1=$1.15 Canadian) (Reporting by Lynne Olver; editing by Rob Wilson)