UPDATE 1-Online jeweler Blue Nile Q3 beats, raises Q4 outlook

* Q3 EPS 17 cents vs Street View 16 cents

* Raises Q4 financial forecasts

* Shares climb 2 percent

LOS ANGELES, Nov 5 (Reuters) - Blue Nile Inc (NILE.O) beat quarterly earnings expectations by a penny but raised its outlook for the fourth quarter as the online jewelry retailer continued to draw customers away from rivals, helping its shares climb 2.2 percent.

Blue Nile, which is benefiting as traditional store-based jewelers struggle, posted net income of $2.6 million or 17 cents a share in its third quarter, versus $2.3 million or 15 cents a share a year earlier.

That result exceeded by a penny the 16 cents that analysts had expected on average, according to Thomson Reuters I/B/E/S.

Blue Nile, which competes with the likes of Whitehall Jewelers Holdings (WHJHQ.PK) and Friedman's Inc, had forecast sales to be flat to slightly down in the third quarter, an improvement from the 5.2 percent decline it saw in the second.

On Thursday, it said it was raising its expectations for 2009's final quarter, to $100 million to $109 million of revenue.

Shares in the company rose to $60 after closing out the regular session at $58.72. (Reporting by Edwin Chan)