UniCredit's Q1 net profit tops forecasts as turnaround gathers pace

* Q1 net income rises 41 pct in adjusted terms on higher revenues

* Analysts say CET1 capital ahead of expectations

* CEO says no plan to change dividend payout in 2018-2019 (Adds comments from analyst call)

By Valentina Za and Paola Arosio

MILAN, May 11 (Reuters) - UniCredit beat expectations with a jump in first-quarter net profit to 907 million euros ($986 million) on Thursday as new boss Jean Pierre Mustier leads a turnaround at Italy's biggest bank by assets.

UniCredit hired 56-year-old French banker Mustier in the middle of last year to address concerns over weak capital and tackle a large bad loan pile. He started selling assets and embarked on a clean-up of the balance sheet that led to a loss of 12 billion euros in 2016.

First-quarter net income topped an average forecast of 612 million euros in an analyst consensus provided by the bank. It was up 41 percent year-on-year excluding restructuring costs that hit the first quarter of 2016.

By 1125 GMT UniCredit shares rose 4 percent, outperforming a higher sector.

"Strong headlines across the board on asset quality, capital and profit recovery should all support continued re-rating of the stock," broker Jefferies said in a note.

UniCredit's result echoed that of rival heavyweight Intesa Sanpaolo which last week reported a first-quarter net profit of 901 million euros supported by a strong asset management business.

UniCredit and Intesa account for 40 percent of all Italian banking assets with the rest spread among the country's remaining 600 lenders.

Analysts say the financial crisis has widened a gap between Italy's lenders, with the bigger ones able to tap investors for capital and the smaller ones poorly placed to offset losses from bad loans.

CAPITAL RAISED

UniCredit is more geared than its rival towards serving Italy's business world, comprising mostly small and medium-sized companies.

"UniCredit and Intesa are quite different ... UniCredit is a very interesting restructuring story that could better suit investors with less risk aversion," Santander wrote in a recent note.

UniCredit raised 13 billion euros in a share issue this year, boosting its best-quality CET1 capital ratio to 11.45 percent in March, which analysts said was ahead of forecasts.

The agreed sales of asset manager Pioneer and Polish unit Bank Pekao will further lift UniCredit's CET1 capital to above 12 percent this year.

Revenue rose 3.4 percent to 4.8 billion euros on higher fees and a sharp increase in trading income. Net interest income improved on a quarterly basis and the bank confirmed it would total 10.2 billion euros in 2017.

UniCredit said it wrote down loans for 670 million euros in January-March, down 12 percent from a year earlier and after booking 10 billion euros in writedowns in the fourth quarter.

Soured debts that rose to nearly one fifth of total loans following a deep recession are the focus of market concerns over Italian banks as they curb their already weak profitability.

"Let's say we're obsessed with balance-sheet asset quality," Mustier told analysts.

UniCredit said it had sold 700 million euros in problem loans so far this year. On Wednesday, it agreed to offload a further 500 million euros in the current quarter. ($1 = 0.9200 euros)

(Reporting by Valentina Za; editing by Jason Neely and Keith Weir)