UPDATE 3-ANZ H1 profit dips on debt costs; shares gain

(Adds analysts comment, share reaction)

By Denny Thomas

SYDNEY, April 23 (Reuters) - Australia and New Zealand Banking Group Ltd (ANZ.AX: Quote, Profile, Research, Stock Buzz), Australia's third-ranked lender, posted a 14 percent drop in first-half core profit due to higher bad debt charges and predicted higher levels of new problem loans.

But ANZ shares rose as much as 2.8 percent to A$21.74, ahead of its rivals, as the bank reassured investors its underlying business was on track despite a challenging global environment.

"On face value it looks like it (earnings) hasn't deteriorated further than expectations so the market's breathing a sigh of relief," said Rohan Walsh, investment manager at Karara Capital, which oversees about A$1.2 billion in Australian shares.

ANZ, the first major Australian bank to release earnings in the current reporting period, said revenue momentum had been improving each month, and it had record revenue growth of 12 percent in the first half.

Australian banks are battling tough global credit markets, a slowing domestic economy and risk of rising defaults among Australian corporates. Still, ANZ's profit is in sharp contrast to massive asset writedowns and losses at major global banks.

Rivals National Australia Bank Ltd (NAB.AX: Quote, Profile, Research, Stock Buzz) and Westpac Banking Corp (WBC.AX: Quote, Profile, Research, Stock Buzz) are expected to announce higher bad debt charges.

"Ignoring the bad and doubtful debt provisions, (ANZ's) underlying business is tracking quite nicely given the turbulent times," said Peter Vann, head of investment research at Constellation Capital Management.