WRAPUP 1-Brazil's top banks post profits, see loan growth

* Bradesco and Itau post strong quarterly earnings

* Banks say not vulnerable to derivatives losses

* Shares rise, outperforming broader market

By Todd Benson

SAO PAULO, Oct 27 (Reuters) - Brazil's two largest private-sector banks reported strong third-quarter earnings on Monday and said they would continue to take advantage of the current market turmoil to snap up loan portfolios from smaller rivals in distress.

Banco Bradesco (BBDC4.SA) and Banco Itau (ITAU4.SA) sought to allay concerns that they might be vulnerable to the recent devaluation of the Brazilian real (BRBY) against the U.S. dollar by disclosing their exposure to foreign currency derivatives.

Both banks have benefited from surging demand for consumer loans in Brazil's fast-growing economy at a time when the global credit crunch has pummeled financial firms from the United States to Europe.

Strong loan growth helped Bradesco (BBD.N), the top private-sector bank in Brazil, post a 3.2 percent increase in third-quarter net profit to 1.91 billion reais ($823.3 million).

Itau ITU.N was not scheduled to report earnings until Nov. 4 but rushed out its results because of the turmoil in financial markets. It posted a quarterly profit of 1.8 billion reais ($775.9 million), up 14.6 percent from a year earlier.

Brazilian banks have taken a pounding on the stock market in recent weeks, at times plunging more than 10 percent in a single session. On Monday, Bradesco shares were up 1.55 percent at 20.32 reais and Itau was up nearly 3 percent at 18.02 reais, compared with a nearly 4 percent drop by the broader market.

"Judging by their shares, they were successful in conveying the message that they haven't been contaminated by the crisis," said Marco Aurelio Barbosa, a bank analyst at Coinvalores, a Sao Paulo brokerage.

NO 'EXOTIC DERIVATIVES'

The Brazilian real has shed about a third of its value since early August, battering a handful of major companies with exposure to foreign currency derivatives. Last week, fears that banks might be the next to unveil derivatives losses hammered shares of Unibanco UBBR11.SAUBB.N, forcing it to publish its third-quarter results two weeks ahead of time.

Unibanco reported a net profit of 704 million reais, up 5.6 percent from a year earlier, and stressed strongly that its derivatives exposure is limited.

Bradesco and Itau followed suit on Monday by disclosing their exposure to derivatives contracts, which are tied to the value of the U.S. dollar.

Bradesco said it does not trade in "exotic derivatives or conduct any kind of target forward operations," adding that it only "structures traditional operations for clients that wish to manage foreign currency positions."