UPDATE 2-Japan pension fund posts 1st qtrly profit in a year

* Makes 3.89 percent on investments, or $48.5 bln profit

* Posts first quarterly profit since April-June 2008

* Helped by recovery in domestic, overseas share prices (Adds comments, breakdown of portfolios)

TOKYO, Aug 27 (Reuters) - Japan’s public pension fund, the world’s largest, turned its first quarterly profit in a year in April-June thanks to a recovery in stock prices as markets stabilised following the financial crisis.

The Government Pension Investment Fund (GPIF) on Thursday reported a 3.89 percent return on its investments in the quarter for a profit of 4.57 trillion yen ($48.5 billion).

Stung by the financial crisis after the collapse of U.S. investment bank Lehman Brothers rocked global markets in September, the GPIF posted a record annual loss of nearly $100 billion in the financial year that ended in March.

“Big gains in share prices both domestic and overseas have helped increase our profits,” Masahiro Ooe, director general of GPIF’s investment management section, told a news conference.

The performance of its investments improved as Tokyo's Nikkei average .N225 climbed 23 percent and the Dow Jones industrial average .DJI rose 11 percent during the three months.

The GPIF invests funds from national and corporate pension plans in foreign and domestic stocks and bonds.

As of the end of June, the GPIF held about 121.86 trillion yen in assets, up from 117.63 trillion yen in March.

The rate of return on market investments, which excludes the Fiscal Investment and Loan Program (FILP) or Zaito bonds, was 4.85 percent, or a 4.49 trillion yen profit -- its biggest quarterly profit since it started managing funds in 2001.

In the year to March 2009, it lost 10.03 percent on its market investments.

The GPIF saw big returns on stocks, though returns on bonds were modest.

Market investments in domestic bonds posted a small return of 0.62 percent during the period, for a 381.1 billion yen profit.

Its foreign bond holdings posted a 1.68 percent return, or a 167.7 billion yen profit.

The rate of return on the GPIF’s investments in Japanese stocks was 20.55 percent, for a profit of 2.34 trillion yen.

The rate of return in its investments in foreign shares was 17.64 percent, a profit of 1.6 trillion yen.

The GPIF’s asset allocation in market investments was coming close to its model portfolio.

By the end of June, the public pension fund, excluding Zaito bonds, had 67.79 percent in domestic bonds, 10.81 percent in Japanese stocks, 8.01 percent in foreign bonds, 8.40 percent in foreign stocks and 5.00 percent in short-term assets.

It allocates its investments based on its model portfolio, which gives a 67 percent allocation to domestic bonds, 11 percent to domestic stocks, 9 percent to foreign stocks and 8 percent to foreign bonds.

The allocation including Zaito bonds was weighted 70.72 percent in domestic bonds, 11.28 percent in Japanese stocks, 8.35 percent in foreign bonds, 8.76 percent in foreign bonds, and 0.89 percent in short-term assets. ($1=94.23 yen) (Reporting by Chikafumi Hodo; Editing by Michael Watson and Chris Gallagher)