CORRECTED-Comerica expects net interest income to decline in Q4

(Corrects fourth paragraph to say Q3 NII declined by $106 million and not 106%, paragraph five to say non-interest income rose 6% and not 17% and paragraph seven to say average deposits amount was $65.88 billion not $65.89 billion)

Oct 20 (Reuters) - Comerica said on Friday its net interest income is expected to decline in the current quarter as banks are pressured to pay more to retain depositors, even as rates rise.

The U.S. Federal Reserve's higher-for-longer interest rate environment has spurred customers into pursuing high-yielding alternatives to bank deposits, like money market funds.

Texas-based Comerica sees its net interest income (NII) - the difference between interest banks earn on loans and pay out on deposits - to decline between 5% and 6% in the fourth quarter.

The lender reported a $106 million decline in third-quarter NII to $601 million, compared with last year. Its net interest margin contracted to 2.84% from 3.51%, a year earlier.

However, the bank managed to beat per-share profit estimates for the quarter as its non-interest income rose 6% to $295 million from the year-ago period.

Comerica earned a profit of $1.84 per share in the quarter ended Sept. 30, compared with analysts' estimates of a $1.69 per share profit, as per LSEG data.

Its average deposits grew 2.4% to $65.88 billion in the quarter.

Bank deposits have steadied recently as customers regained confidence in regional banks after a sector-wide crisis in March saw them move money away from smaller lenders seeking the security of large "too-big-to-fail" institutions.

Peers Fifth Third Bancorp and Regions Financial also forecast a decline in their fourth-quarter NII.

(Reporting by Pritam Biswas in Bengaluru; Editing by Shweta Agarwal)