UPDATE 4-American Express profit falls, but beats estimates

* Posts higher-than expected earnings

* Sets aside more money for credit losses

* Shares rise 6.5 percent after hours (Adds executives' comments, updates share price)

By Juan Lagorio

NEW YORK, Oct 20 (Reuters) - American Express Co (AXP.N) said on Monday third quarter earnings fell more than 20 percent as it set aside more money to cover growing losses in its credit card business, but operating earnings beat analysts' estimates and there was a sigh of relief from investors as results were not as bad as some had expected.

The company's shares rose 6.5 in trade after the bell closed.

But American Express offered a gloomy outlook for the future, noting that economies globally are likely to be weaker well into next year and cardholder spending is likely to stay soft, and estimated loan losses would increase in the coming quarters.

But it also said it is taking steps to reduce its credit risk, cut costs and decrease investments in marketing.

"I was expecting such a bad quarter. There's a sense of relief now," said Andrew Boord, an equity research analyst covering financial stocks at Fenimore Asset Management, which owns American Express shares.

American Express's third-quarter earnings from continuing operations fell to $861 million from $1.1 billion in the same quarter last year.

Diluted earnings per share from continuing operations fell to 74 cents from 94 cents in the same quarter last year. Analysts had on average expected 59 cents a share before items, according to Reuters Estimates.

Third-quarter net income, which includes results from discontinued operations, fell 24 percent to $815 million.

The results were helped by the fact that American Express, a Dow Jones industrial average .DJI component, set aside less money for bad loans in the third quarter than in the second quarter, even though loss expectations have risen.

The company set aside $1.37 billion for bad loans, a decline of more than 25 percent from the second quarter, despite delinquencies having risen as the financial crisis has weighed on the ability of some consumers to pay their bills.

Loan loss provisions increased 51 percent from a year earlier.

The company is selectively scaling back credit lines from some U.S. customers, cutting expenses and reducing efforts to gain new customers domestically.