UPDATE 2-Banco Santander beats forecasts as Brazil offsets pressure elsewhere

* Q3 net up 1 pct to 1.7 bln vs average estimate of 1.5 bln

* Net profit falls in Britain and Spain, up in Brazil

* Says on track to meet objectives

* Shares up 1.2 pct, hit six-month high (Adds details, analyst, share price)

By Angus Berwick and Jesús Aguado

MADRID, Oct 26 (Reuters) - Improved results in Brazil helped Spain’s Banco Santander beat profit estimates on Wednesday, offsetting weak performances in its domestic market and in Britain and sending its shares to a six-month high.

Despite falling net profit in Britain and Spain, Santander’s operations in its biggest territory Brazil and other emerging markets have helped it cope with a squeeze on margins in Europe that has pressured its banking peers.

Santander, which has slipped behind BNP Paribas to be the euro zone’s second-biggest bank by market value, reported a 1 percent rise in net profit to 1.7 billion euros ($1.9 billion), beating an average estimate of 1.5 billion in a Reuters poll.

Santander shares were up 1 percent by 0840 GMT against a 0.4 percent drop in the STOXX Europe 600 banking index, and were among the leaders on Spain’s blue-chip Ibex index. The stock rose as high as 4.534 euros, its highest since April.

The lender’s fortunes continued to improve in Brazil, where it posted rises in profit and net interest income (NII), a measure of earnings on loans minus deposit costs, against the previous year and the second quarter.

Santander had cut its group profitability goal last month, along with its targets for Spain and Britain, warning investors it saw tougher times ahead due to record low interest rates and the British vote to leave the European Union.

On Wednesday, however, boss Ana Botin said Santander was still on track to meet its objectives for this year and next despite the interest rate environment.

“We expect to finish 2016 with profit growing against the year before, which will allow us to increase the dividend per share and profit per share,” Botin said in a statement.


In Britain, Santander said it expected its margins to remain “broadly stable” since the Brexit vote, but there would be lower consumer confidence and economic growth in future. Its British profits have been hit by the slump in sterling, which has fallen close to 20 percent since the June referendum.

“Although we have not seen a material impact on our business in the short period since the EU referendum, we do expect a more challenging macroeconomic environment ahead,” said UK head Nathan Bostock.

Analysts highlighted the performance of its Latin American markets, in particular Brazil and Mexico, whose results had outperformed consensus by about 20 percent according to analysts at Jefferies, and flagged its slowing Spanish business.

Net interest income and net profit in Brazil rose for the second quarter in a row after a deep recession there caused returns to tumble last year.

“Weaker Spain net interest income and higher Brazil provisions (on bad loans) take some of the shine off,” the Jefferies analysts said in a note.

Santander’s net interest income was 7.8 billion euros in the third quarter, down 2.3 percent from a year ago, mirroring pressure on margins experienced by other Spanish banks such as Bankia, which also reported results on Wednesday.

In Spain, Santander said its margins were squeezed by mortgages re-pricing to lower rates.