(Repeats to add link to Breakingviews comment; also repeats to additional Reuters clients)
* BBVA to buy Catalunya Banc for around 1.2 bln euros
* Adds average 300 mln euros to profit from 2018
* BBVA shares rise 2 percent (Adds background and CFO comments, shares, details on expected losses)
By Sarah White and Jesús Aguado
MADRID, July 22 (Reuters) - Lender BBVA said on Tuesday its acquisition of bailed-out Spanish peer Catalunya Banc would add an average 300 million euros ($404 million) annually to its group profit from 2018, as it made a show of confidence in its recovering home market.
BBVA, which makes most of its revenue overseas in regions such as Latin America, on Monday said it was buying the Barcelona-based lender off the state for around 1.2 billion euros.
The bank's latest domestic purchase in the wake of a 2008 property market crash, which crippled many smaller peers, will bulk up its presence in the country's wealthiest region and make it Spain's biggest lender by assets.
It beat big rival Santander to buy Catalunya Banc as well as Caixabank, which is also based in the Catalonia region and was seen as a frontrunner for the purchase.
As Spain emerges from a six-year recession banks are trying to ramp up revenues even though credit demand remains weak and soured debts are still high. That is heightening competition to lend to viable small companies and win over depositors - a pressure that could spark more consolidation in the banking sector, BBVA said.
"Competition dynamics will probably generate further opportunities. It is something to be analysed in the future," Jaime Saenz de Tejada, the bank's finance director, told analysts on a conference call.
He told journalists "it should not be a problem to increase our exposure to a region with very positive prospects" and said the bank was confident about the country's growth potential.
The Spanish government expects economic output to grow 1.2 percent this year. BBVA, meanwhile, declined to comment on potential risks from a Catalan referendum this year on breaking away from Spain, which local leaders are pushing for.
BBVA's stock was up 2 percent at 1005 GMT at 9.1 euros per share.
BBVA, which also bought rescued Catalan bank Unnim in 2012, said restructuring costs from the Catalunya Banc deal would reach around 450 million euros. It expects 1.2 billion euros in synergies from the operation, most of them on the cost front.
Catalunya Banc needed part of a 41.3 billion euro bailout Spain took from Europe for its weakest banks, and has taken a total of 12.6 billion euros in state aid.
The government recently slimmed the bank down even further to rid it of its most problematic mortgages and a property management unit.
BBVA said it still expected about 15 percent losses on Catalunya Banc's total credit portfolio, but said non-performing loans were well covered by provisions.
The bank had just over 28 billion euros in gross loans at the end of 2013, though it has just sold a big home loan portfolio to U.S. private equity firm Blackstone.
"The price paid by BBVA is not too high ... particularly considering the Spanish state has kept a number of risks on its side," analysts at Espirito Santo bank said on a note.
Spain's FROB, which handles the government's stakes in banks, will give guarantees under the deal to cover potential litigation costs, mis-selling claims from customers and a fee for breaking an insurance contract. ($1 = 0.7417 Euros) (Reporting by Sarah White and Jesus Aguado Editing by Sarah Morris)